Combined market ACV up 7%, to $24.8 billion,
best quarter in two years
Market driven by cloud XaaS, up 11%, with
managed services up only slightly
ISG sees slow growth environment continuing;
lowers 2024 managed services growth forecast to 2%, XaaS forecast
to 14%
The global market for managed IT and business services remains
sluggish, even as demand for cloud-based services continues to
rebound, according to the latest state-of-the industry report from
Information Services Group (ISG) (Nasdaq: III), a leading global
technology research and advisory firm.
Data from the global ISG Index™, which measures commercial
outsourcing contracts with annual contract value (ACV) of $5
million or more, show second-quarter ACV for the combined global
market (both managed services and cloud-based as-a-service) was up
7 percent versus the prior year, to $24.8 billion, its highest
level since the second quarter of 2022. Although it was the fifth
consecutive quarter the global combined market has risen
sequentially, the rate of increase has averaged only 1.4 percent
quarter over quarter during that span.
“The IT and business services industry continues to be in a
low-single-digit growth environment as discretionary spending
remains under pressure,” said Steve Hall, president and chief AI
officer of ISG. “Revenue growth for the industry slowed in the
second quarter to just over 1 percent, compared with just over 3
percent growth in the second quarter last year. Provider margins
are also under pressure and margin growth declined for the second
quarter in a row, resulting in slower hiring as topline growth
stalls.”
Second-Quarter Results by Segment
The as-a-service (XaaS) segment climbed 11 percent versus the
prior year, to $14.7 billion, the second straight quarter XaaS
turned in year-over-year growth of 11 percent. This latest growth
streak comes after five straight quarters of year-over-year
declines, as cloud demand appears to be on the rebound.
Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV
advanced 15 percent versus the prior year, to $10.9 billion, its
best quarter since the third quarter of 2022. The Big Three
hyperscalers (AWS, Microsoft Azure and Google Cloud), which
together account for nearly 75 percent of IaaS ACV, saw their
combined ACV grow 31 percent in the last quarter.
“Our buyer behavior research shows nearly half of enterprises
plan to renew or expand an existing IaaS agreement in the next 12
months, and 40 percent expect to increase their IaaS consumption in
that timeframe,” Hall said. “This could signal that the cloud
optimization cycle we’ve been in over the last 18 months could
finally be coming to an end.”
Software-as-a-service (SaaS), meanwhile, came in at $3.8
billion, essentially even with the prior year (down 0.2 percent)
and off 5 percent sequentially. Hall attributed the decline to
enterprises trimming SaaS “seats” as a cost-saving measure, and to
technical debt.
The managed services segment produced second-quarter ACV of
$10.1 billion, up 1.2 percent versus the prior year, and up 1
percent quarter over quarter. A total of 723 managed services
contracts were awarded during the quarter, the second-most ever and
up 7.4 percent over the prior year. Among the contracts were 10
mega-deals (contracts with ACV of $100 million or more), even with
the prior year, but down 28 percent in total ACV.
Within managed services, IT outsourcing (ITO) generated ACV of
$7.7 billion, up 2 percent compared with the prior year, and up 14
percent from the first quarter, one of its slowest quarters in the
last two years. Applications development and maintenance (ADM) ACV
declined 16 percent versus a strong prior year, while data center
ACV surged 66.5 percent, to top $1 billion of ACV for the first
time in the last 10 years, driven by large awards in the
quarter.
Business process outsourcing (BPO) declined 1 percent, to $2.4
billion, but was off 26 percent compared with a strong first
quarter, even as the number of BPO awards rose more than 12 percent
year over year. This segment saw growth in industry-specific BPO
and engineering, research and development (ER&D) services,
offsetting declines in finance and accounting (F&A) and
customer engagement services.
First-Half Results
In the first half, combined market ACV of $49.3 billion rose 6.3
percent over the prior year. Managed services, at $20.1 billion of
ACV, was flat (up 0.1 percent), while XaaS, at $29.2 billion, was
up 11 percent versus the prior year. There were a record 1,435
managed services contracts signed in the first half, up 3 percent
from the prior year, including 14 mega-deals, down from 18 in the
prior-year period due to a slow first quarter in 2024.
Within managed services, both ITO ($14.5 billion of ACV, up 0.2
percent) and BPO ($5.6 billion, down 0.3 percent) were even with
the prior year, while on the cloud side, the IaaS market rose
nearly 15 percent, to $21.4 billion, and the SaaS market was up 1.7
percent, to $7.7 billion.
Among industries, combined ACV in the banking, financial
services and insurance (BFSI) sector was down 1 percent in the
first half, with an 11 percent increase in XaaS spending not enough
to offset an 11 percent decline in managed services ACV. The energy
sector, meanwhile, saw its combined ACV drop 7 percent, with
managed services off 19 percent and XaaS up 11 percent.
2024 Forecast
For the full year, ISG is forecasting 2 percent revenue growth
for managed services, down 100 basis points from its April
forecast, and 14 percent revenue growth for XaaS, down from its 15
percent growth forecast in April.
“Uncertainty persists in the IT and business services market,
with no clear catalyst at the moment to push discretionary spending
higher,” Hall said. “Activity in the important BFSI sector remains
dampened, due to the higher-for-longer interest rate environment,
impacting the overall growth of the market. Enterprises in general
continue to focus on cost optimization, and AI growth, while
strong, is likely masking underlying weakness in the IT and
business services industry.”
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for
marketplace intelligence on the global technology and business
services industry. For 87 consecutive quarters, it has detailed the
latest industry data and trends for financial analysts, enterprise
buyers, software and service providers, law firms, universities and
the media.
The 2Q24 Global ISG Index results were presented during a
webcast today. To view a replay of the webcast and download
presentation slides, visit this webpage.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading
global technology research and advisory firm. A trusted business
partner to more than 900 clients, including more than 75 of the
world’s top 100 enterprises, ISG is committed to helping
corporations, public sector organizations, and service and
technology providers achieve operational excellence and faster
growth. The firm specializes in digital transformation services,
including AI and automation, cloud and data analytics; sourcing
advisory; managed governance and risk services; network carrier
services; strategy and operations design; change management; market
intelligence and technology research and analysis. Founded in 2006,
and based in Stamford, Conn., ISG employs more than 1,600
digital-ready professionals operating in more than 20 countries—a
global team known for its innovative thinking, market influence,
deep industry and technology expertise, and world-class research
and analytical capabilities based on the industry’s most
comprehensive marketplace data. For more information, visit
www.isg-one.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20240711634712/en/
Press Contacts: Will Thoretz, ISG +1 203 517 3119
will.thoretz@isg-one.com
Julianna Sheridan, Matter Communications for ISG +1 978-518-4520
isg@matternow.com
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