![How ChatGPT Will Disrupt Indian IT Companies? JP Morgan Explains](http://media.assettype.com/cornerofficejournal%2F2023-02%2F82da8762-5abe-4682-940c-cef8b8a69bf1%2FChatGPT.png?w=480&auto=format%2Ccompress&fit=max)
Generative artificial intelligence (AI) models such as Chat Generative Pre-Trained Transformer (ChatGPT) could be a source of disruption for the Indian information technology (IT) companies and slow down their market share gains and deflate pricing, J.P. Morgan said.
ChatGPT, which interacts in a conversational way, is an advanced AI chatbot developed by OpenAI, whose investors include Microsoft, Reid Hoffman’s charitable foundation, and Khosla Ventures.
The dialogue format makes it possible for ChatGPT to answer follow-up questions, admit its mistakes, challenge incorrect premises, and reject inappropriate requests, according to OpenAI.
The San Francisco, US-based OpenAI, founded in December 2015, launched ChatGPT in November 2022. The popularity of ChatGPT has soared immensely since its launch, with chatbot’s user base reaching 100 million in just two months, according to media reports.
The popularity of ChatGPT is expected to open up new opportunities for businesses by increasing the productivity. However, it will also open up new challenges for businesses, including Indian IT companies.
“Generative AI models such as ChatGPT can potentially simplify coding and democratize access to a wider pool of talent, driving a new source of disruption. This can have a combination of headwinds and tailwinds for IT services firms,” JP Morgan said in an investor note recently.
Following are the key highlights from JP Morgan’s assessment on the impact of ChatGPT on Indian IT companies:
Positives - Better Productivity, Wider Supply Pool
Generative AI can be a productivity booster (such as libraries, tools and development resources and simplify low end code), bringing down costs that can be retained by vendors early in the cycle with less mature clients.
This can also eventually create a new area of work for firms in implementing this technology on enterprise technology stacks.
ChatGPT and other forms of generative AI programs are likely to make code writing easier, driving a lot more reuse. This would likely need validation by an experienced programmer but cut down effort.
Negatives - Threat On Pricing
Generative AI can be a deflation driver in the near term on legacy services and generally on pricing, necessitate staff retraining and can drive loss of competitiveness.
There have been several historical drivers of productivity that have ended up being deflationary drivers on pricing over the last 20 years.
Challenges come from a fresh new deflationary driver in managed services projects, and the need for retraining staff made redundant.
Future Path
Enterprises have experimented with OpenAI and GPT3 over the past year and several service providers are already working on projects involving ChatGPT/GPT3.
Winners & Losers
ChatGPT is likely to deflate legacy services the most and application services the least.
Consulting heritage firms like Accenture and Deloitte and digital native firms are likely to gain share over Indian IT companies in the near term with such changes.
Among Indian IT firms, those with stronger graduate hiring and training infrastructure such as Infosys Ltd. and Tata Consultancy Services Ltd. (TCS) are likely to retrain staff faster than smaller peers.
JP Morgan said over the software development life cycle there have been several drivers of developer productivity that have shifted the paradigm such as frameworks, libraries, tools, stack overflow and web search and each of these has made developers more productive over time.
The brokerage said these have also democratized technology jobs for a wider talent pool over time, making recruitment easier for IT services firms and lowering the average cost of development. This is another reason why pricing on a US dollar per hour basis has virtually remained unchanged for IT services firms over the last 20 to 30 years despite inflation in low-cost geographies and in client locations during this period, it added.
“We think over time this could be a source of disruption, similar to an early stage of DX (digital transformation) over 2015-2019, that slows down share gains and deflates pricing before Indian techs (technology companies) reorient themselves,” JP Morgan said.
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