Region’s growth paced by XaaS demand, as
managed services remains sluggish
Demand for IT and business services in the Americas rebounded in
the second quarter as the region produced its best growth in two
years, even as spending on managed services remained sluggish,
according to the latest state-of-the-industry report from
Information Services Group (ISG) (Nasdaq: III), a leading global
technology research and advisory firm.
The Americas ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of $5 million or more,
shows second-quarter ACV for the combined market—including both
cloud-based as-a-service (XaaS) and managed services—rose 10
percent, to $12.1 billion, the region’s first quarterly
double-digit increase since the second quarter of 2022.
The latest quarter ends a streak of five straight quarters of
year-over-year declines, after the market peaked at $13.5 billion
of combined ACV in the first quarter of 2022.
Overall, second-quarter growth was driven largely by XaaS
spending, which rose 15 percent, to $7.4 billion, the first time
XaaS ACV exceeded $7 billion in a quarter since the fourth quarter
of 2022. Managed services ACV, meanwhile, rose 3 percent, to $4.7
billion, against a soft year-ago quarter. It was only the second
time in the last seven quarters that managed services ACV fell
below $5 billion in a quarter.
Managed services contract volume, at 347 deals, was down nearly
6 percent from the prior year. There were four mega-deals (with ACV
of at least $100 million) signed in the quarter, compared with
three such deals in the prior year.
Managed services growth was held back by a sharp decline in
spending by the banking, financial services and insurance (BFSI)
sector, the region’s largest industry for IT and business process
outsourcing. BFSI ACV fell 18 percent, as other industries
advanced, including manufacturing (up 9 percent), consumer packaged
goods (up 29 percent), retail (up 46 percent) and media and
telecommunications (up more than 250 percent).
“Enterprises are spending again on cloud-based services,
particularly as they look to modernize their data capabilities to
pave the way for generative AI at scale,” said Todd Lavieri, ISG
vice chairman and president of ISG Americas and Asia Pacific.
“Managed services demand continues to be sluggish, as discretionary
spending remains under pressure. Companies continue to focus on
optimizing their existing investments and are slow to begin or
accelerate new initiatives.”
The downturn in the BFSI sector this quarter is emblematic of
that trend, Lavieri noted. “We continue to see banks laser-focused
on cost optimization and ensuring ROI from past investments, but we
also see a strong desire not to miss the boat on AI, which is
driving new project-based work.”
Lavieri added: “With signs of slowing inflation in the U.S., and
early indications that interest rates may be easing, we expect the
Americas market to slowly rebound in the coming quarters.”
Results by Segment
Within managed services, IT outsourcing (ITO) declined 4
percent, to $3.4 billion of ACV, as growth in data center and
infrastructure services was offset by a sharp decline in
application development and maintenance (ADM) services. ACV for
business process outsourcing (BPO), meanwhile, surged 25 percent,
on strong demand for facilities management; engineering, research
and development (ER&D) and industry-specific services.
On the cloud side, infrastructure-as-a-service (IaaS) ACV
climbed 24 percent, to $5.1 billion, even as software-as-a-service
(SaaS) dipped 1 percent, to $2.3 billion.
First-Half Results
The Americas’ combined market rose 4 percent year to date, to
$24.2 billion, versus a soft first half last year. The combined
market, however, remains 7 percent lower than the first half of
2022, when it reached a record high.
Managed services ACV declined 2 percent, to $9.8 billion, on 717
contracts – including six mega-deals, compared with nine such deals
last year. Within managed services, ITO was down slightly (0.6
percent), to $6.8 billion, while BPO fell 6 percent, to $3.0
billion.
XaaS spending in the first half was up 8 percent, to $14.4
billion, with IaaS up 13 percent, to $9.6 billion, and SaaS
essentially even (up 0.1 percent), at $4.8 billion.
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.
“Globally, there is no clear catalyst at the moment to push
discretionary spending higher,” Lavieri said. “As in the Americas,
global activity in the important BFSI sector remains dampened, due
to the higher-for-longer interest rate environment. 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. For more information about the ISG Index, or to view a
replay of the 2Q24 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/20240716091564/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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