Bernstein analyst Richard Nguyen has set out a thesis he says will materially alter the structure of the global services industry over the coming years: a model he and his team call Services-as-Software. In a client note published on Monday, Nguyen described the concept as "an emerging trend that will profoundly transform the business model of services providers, and reshape the competitive landscape, over the next 3-to-5 years."
At its core, the model replaces traditional, labor-intensive service delivery with solutions delivered "primarily through AI-powered software rather than through traditional human-delivered work," Nguyen wrote. Under this approach, buyers pay for outcomes rather than for billed hours of labor, changing the metric and economics of engagement.
Bernstein highlighted several catalysts for the shift. The firm pointed to survey-backed intent among enterprises, saying "six enterprises out of ten plan to replace people-run services with software-run services by 2028." That aim is being propelled, the note says, by advances in artificial intelligence, by contractual re-negotiations, and by greater in-sourcing.
The potential opportunity is presented as sizable. Citing market research, Bernstein referenced a Gartner estimate that the sector could expand to "up to $700bn by 2028 from less than $20bn in 2025." Separately, the firm noted HfS Research projections of revenues of "$600bn in 2028, and $1.5tr by 2035." Bernstein also flagged a prospective budgetary shift: Services-as-Software could account for 20% of IT spend by 2028, versus zero today.
For incumbent service providers, Bernstein set out operational priorities. Companies will need to reorganize their employee base to include digital workers - referred to as AI agents - alongside human staff. Providers should also "move up the value chain to incorporate more consulting and intellectual property in their software-based offerings," the note advised.
Bernstein framed the financial upside as meaningful for adopters. The firm models revenue growth of "30%-plus" for successful transitions, with potential margin expansion driving gross margins to "65-70%" and operating margins to "15-25%."
On competitive positioning, Bernstein identified select firms as relatively well placed for the change. The analyst singled out companies such as Capgemini and Reply as appearing "relatively well-positioned" to benefit from the move toward Services-as-Software.
The note also included a market-facing prompt referencing the ticker CAPP in the context of valuation tools, but did not make further claims about that specific security within the analysis.