Computers and the digital ecosystems that come with them have taken over the office. They’ve replaced dozens of workplace staples, with typewriters, fax machines and file cabinets all but disappearing as their functions have been folded into ever-expanding electronic networks.

But that increased utility has brought increased complexity. Digital interconnectedness requires a dizzying array of tailored programs and specialized knowledge. The popular myth of tech startups hammering together hardware in a garage has given way to the reality that modern equipment requires dedicated teams of technicians. Increasingly, companies are turning to outside businesses to keep their systems up to date and running smoothly.

That dynamic is powering the growth of information technology consulting services — and the ongoing shift to cloud computing and the rise of artificial intelligence are poised to further fuel these companies.

Still room for growth in the cloud

Source: Statista. As of January 2023.

For many years, demand for IT consulting fluctuated with economic conditions, tech-upgrade cycles and project-specific assignments. That’s changed over time as clients have opted for ongoing support and maintenance contracts. These sources of “sticky,” resilient income provide IT businesses with greatly needed stability during economic downturns.

Of course, the IT industry carries risks. Many businesses struggle to differentiate themselves, particularly with smaller customers that don’t have elaborate needs. IT companies also tend to lack pricing power, and this can be painful during periods when costs are rising.

Still, I find the growth opportunities, particularly in the near term, to be very attractive. That’s especially true for well-managed, forward-looking companies that can get ahead of new technology trends.

Technological shifts have rewarded nimble companies — and more changes are on the horizon.

One of the exciting elements of IT consulting is how technological change has come in waves, each necessitating updates and adaptations. Over the last 20 years, there’s been an offshoring wave, an enterprise resource planning wave and an infrastructure wave. We’re in the midst of another wave — the move to cloud services and storage, with artificial intelligence representing another potentially big shake-up. For the most part, clients lack the in-house expertise to master all this on their own, opening opportunities for IT companies.

Today, cloud computing — in which a business stores data in offsite computers run by third-party providers — is providing two big drivers for growth. First, moving from an in-house system to the cloud is an ongoing priority for many businesses. I estimate that globally we are only 30% to 35% done moving to off-site data systems. Second, many historical applications were created before the cloud and must be modernized to take advantage of it. I think the industry stands to experience strong growth from these trends over the next three to four years, with the shift toward the cloud continuing to generate a modest boost after that.

Forecasts suggest plenty of space for expansion

Source: Statista. Data for 2023 and later is a forecast. As of April 2023.

Of course, there’s another potentially big wave in the tech world: artificial intelligence. I’m carefully analyzing the impact of AI applications such as ChatGPT on IT consulting — both how businesses at large could adopt it and how IT service providers could harness it.

Although it’s still too early to definitively say how AI will affect global business, we can already discern some effects on IT consulting. Large language models such as ChatGPT that have access to coding libraries can produce tailored code on demand. That could offer significant efficiency gains — a powerful incentive for an industry dominated by companies that each employ hundreds of thousands of people. This change isn’t a panacea, as the coding isn’t error-free and must be put through standard testing regimens. But it could help pad the bottom line.

IT consulting companies have largely pivoted to stickier revenue models.

One of consulting’s classic downsides is its volatility. IT consulting companies have little control over what clients want or when they want it. Not surprisingly, big one-time contracts are typically the first to be delayed or canceled during economic or financial uncertainty. That doesn’t mean such work isn’t lucrative, but IT consulting businesses know they need to diversify their income to better manage recessions and other dry periods.

That’s where maintenance comes in. The combination of enterprise software, custom coding and deeply networked systems that characterizes modern electronic infrastructure is highly complex and requires constant oversight. Someone has to ensure that the software is up and running, respond to worker issues and keep all the pieces updated — all without interrupting the system or breaking anything fundamental. It makes sense to bundle these ongoing, day-to-day tasks into a single subscription-style service.

From the IT consulting company’s viewpoint, this kind of contract is very stable and forms the basis for reliable and recurring sales. The work is critical, so it’s unlikely to be trimmed during down periods. Switching contractors is difficult because of the complex and boutique nature of the networks; a new contractor would have to navigate the system’s idiosyncrasies while responding to day-to-day issues and keeping the whole network operational. It’s a daunting task, and many corporations aren’t willing to risk an outage or worse to get slightly better pricing from a new maintenance provider. The move to the maintenance model has been pronounced, with many IT consulting companies making 85% or more of their revenue from this kind of work, per first-quarter figures.

Overall, I’m very excited about this industry. These companies have positioned themselves to benefit from ongoing technological changes while limiting project-dependent volatility — an appealing combination in a field known for big swings.