Strong Recovery in the Global IT and Business Services Sector
In a remarkable turnaround, the global IT and business services market has achieved record performance in the third quarter, marking a significant recovery after a challenging period that lasted over a year. The recent findings from the Information Services Group (ISG) highlight a revitalized landscape, bringing optimism back to industry players.
Record Growth in Outsourcing Contracts
The ISG Index™, which tracks commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, reported that third-quarter ACV reached an impressive $26.7 billion. This figure represents a 15 percent increase compared to the previous year and is the highest since the market peaked at $26.4 billion in the first quarter of the previous year. This ongoing upward trajectory has seen the market advance for five consecutive quarters, recovering from a low point of $23.2 billion.
Leadership Insights on Market Trends
According to Steve Hall, president and chief AI officer of ISG, this quarter is seen as a redemptive phase for the sector. "The managed services market has hit a new high, although it is slightly tempered by challenges in the banking, financial services, and insurance (BFSI) sectors. Conversely, the as-a-service segment benefits from a turnaround as businesses increasingly view the cloud as a robust framework for their GenAI initiatives," he notes.
Segment Analysis: Performance Breakdown
The as-a-service (XaaS) category demonstrated remarkable growth, climbing 23 percent year-over-year to reach $15.8 billion. This marks the strongest growth for the segment since the second quarter of the last year. Additionally, Q3 showed a 7 percent increase sequentially, continuing a pattern of recovery.
Infrastructure-as-a-Service on the Rise
Infrastructure-as-a-service (IaaS) witnessed a staggering 30 percent growth year-over-year, with ACV hitting $11.9 billion. This uptick is majorly attributed to advancements in artificial intelligence, pushing cloud-based AI spending to new heights. The leading providers—AWS, Microsoft Azure, and Google Cloud—reported a 49 percent rise in third-quarter ACV, totaling nearly $9 billion.
Challenges within Software-as-a-Service (SaaS)
The Software-as-a-Service (SaaS) sector, however, faced hurdles, totaling $3.9 billion in ACV, reflecting a 5 percent annual increase but stagnating when compared to the second quarter. Hall mentions the ongoing struggles of SaaS companies to adapt amidst fluctuating demand and revenue patterns, particularly as organizations reassess their AI strategies.
Managed Services Continues to Thrive
In the managed services domain, ACV reached a record $10.9 billion, showing a 5 percent rise compared to the previous year. The segment's growth has been consistent, advancing year over year in 15 out of the last 17 quarters. The third quarter saw 690 managed services contracts awarded, marking a 4 percent increase compared to last year, despite a slight sequential drop.
Year-to-Date Trends and Future Predictions
Year to date, the combined market has generated an ACV of $75.7 billion, displaying an 8.5 percent growth from the previous year. The managed services sector also continues to show resilience with ACV standing at $31.1 billion, representing a 1.3 percent increase.
Looking Ahead: 2024 Forecast
For the full year, ISG is maintaining its predictions, forecasting modest 2 percent revenue growth for managed services and a robust 14 percent for XaaS. The prevailing concern lies in the mixed signals from the market, particularly relating to the BFSI sector. However, Hall remains optimistic, citing factors such as recent rate cuts by central banks, growing interest in GenAI, and an uptick in server shipments as indicators of a more promising outlook for 2025.
About ISG and Its Expertise
ISG (Information Services Group) stands as a leading global technology research and advisory firm dedicated to helping businesses and service providers achieve operational excellence. With a commitment to facilitating digital transformation services across AI, cloud, and data analytics, the firm supports over 900 clients globally, including more than 75 top enterprises. Established in 2006 and based in Stamford, ISG employs over 1,600 professionals across 20 countries, blending industry knowledge with analytical prowess in its advisory role.
Frequently Asked Questions
What does the ISG Index measure?
The ISG Index measures commercial outsourcing contracts with an annual contract value of $5 million or more, providing insights into market trends.
What segment saw the highest growth in Q3?
The as-a-service (XaaS) segment experienced the highest growth, climbing 23 percent year over year to reach $15.8 billion.
Who are the leading providers in the IaaS market?
The top providers in the infrastructure-as-a-service market include AWS, Microsoft Azure, and Google Cloud.
What is the future forecast for managed services?
ISG forecasts a 2 percent revenue growth for managed services in the upcoming year, despite some current market fluctuations.
How does ISG support its clients?
ISG offers advisory services in digital transformation, technology research, managed governance, and strategic operations to facilitate operational growth.
