Examining Cloud and Managed Services Growth in Americas
Rising Demand for IT and Business Services in the Americas
In recent times, the Americas has witnessed a remarkable surge in the demand for IT and business services. This trend, particularly pronounced in the second quarter, highlights the increasing focus on technological advancements such as AI adoption and the pursuit of cost optimization across various sectors.
Key Results from the ISG Index™
The ISG Index™, which tracks commercial outsourcing contracts in the Americas, has reported a historic annual contract value (ACV) for the second quarter. With a striking figure of $15.5 billion, there was a substantial increase of 26%. This was not only the highest growth rate observed in the past three years but also a 6% rise compared to the previous quarter.
Breakdown of Service Demand
Demand for managed services and cloud services saw considerable growth. Managed services recorded an ACV of $5.9 billion, growing by 20% year over year. This represents the most significant growth rate since late 2023, marking a continuation of positive trends for three consecutive quarters, a pattern not observed since 2022. In the realm of cloud services, the ACV surged to $9.6 billion, achieving a 29% increase from the previous year as companies prioritize investments in cloud solutions to boost their AI capabilities.
Contract Awards in the Second Quarter
During the second quarter, there were 392 managed services contracts awarded, reflecting a rise of 10% compared to the previous year. Among these contracts, five mega-deals with an ACV of at least $100 million were finalized, representing an increase from four deals last year. Notably, the combined ACV of these five mega deals jumped by 81% year over year, as organizations seek to streamline costs through larger contracts. Moreover, the volume and value of new-scope contracts saw increases exceeding 30% from a year ago, despite a decline in smaller deals valued under $10 million, which indicates a shift in focus towards larger, more impactful projects.
Industry-Specific Growth
Various sectors have experienced significant growth, with some exceeding 50%. For example, the energy sector recorded a 78% rise in managed services ACV. Similarly, manufacturing and the travel, transportation, and hospitality sectors saw growth rates of 69% and 68%, respectively. The largest sector measured by ACV—banking, financial services, and insurance (BFSI)—grew by 20%. Healthcare also observed a healthy increase of 33%, reflecting the broadening integration of IT service solutions across industries.
Insights from Industry Leaders
Todd Lavieri, the vice chairman and president of ISG Americas and Asia Pacific, stated, "The market acceleration in the Americas continues. Enterprises appear to be shrugging off macro uncertainty as they continue to invest in cloud services to power their AI ambitions and turn to managed services to optimize their costs and reinvest the savings in new initiatives."
Managed Services Segment Performance
Within managed services, the performance of IT outsourcing (ITO) is noteworthy, having increased by 32% to an ACV of $4.6 billion. This growth is primarily driven by advancements in application development and maintenance services. Conversely, business process outsourcing (BPO) saw a decline of 20%, bringing ACV down to $920 million due to challenges across most service areas. Engineering, research, and development (ER&D) services surged by 35%, reaching $326 million, indicating a dynamic shift in focus areas for many organizations.
The Future Prospects for 2025
Looking ahead, ISG has retained its forecast for managed services growth at 1.3% for the year. This outlook reflects a stabilizing economic environment yet indicates continued caution related to discretionary spending. Encouragingly, ISG has raised its growth expectations for cloud-based XaaS services by 300 basis points, now anticipating a 21% increase for 2025 driven by unwavering demand for AI-optimized solutions.
About ISG and the ISG Index™
Information Services Group (NASDAQ: III) is a global leader in technology research and advisory services. The ISG Index™ serves as a critical resource, providing valuable insights into trends impacting the technology and business services markets. This index has been fundamental in offering reliable data for analysts, buyers, and service providers over the years.
Frequently Asked Questions
What contributes to the growth in IT and business services demand?
Factors include increased AI adoption, cost optimization strategies, and a focus on cloud solutions among enterprises.
What was the record ACV reported in the second quarter?
The second quarter ACV reached $15.5 billion, a significant increase of 26% year-over-year.
Which sectors saw the most considerable growth in managed services?
Key sectors include energy, manufacturing, and travel, each experiencing growth rates exceeding 50%.
What does the future look like for managed services growth in 2025?
ISG anticipates a growth rate of 1.3% for managed services, despite challenges in discretionary spending.
How has ISG adjusted its growth forecast for XaaS solutions?
ISG has raised its growth forecast for XaaS services to 21%, reflecting strong ongoing demand.
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