Combined market ACV up 4% from prior year,
to $24.7 billion
XaaS ACV up 7%, while managed services ACV
declines slightly
ISG maintains 15% growth forecast for XaaS,
drops managed services growth to 3% for 2024
Global spending on IT and business services rose in the first
quarter as the market for cloud-based services returned to growth,
driven in part by rising interest in generative AI, 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 first-quarter ACV for the combined global
market (both managed services and cloud-based as-a-service) was up
4 percent year over year, to $24.7 billion, its highest level since
the second quarter of 2022. It was the first time the combined
market grew year over year since the fourth quarter of 2022, but
the third consecutive quarter it has risen sequentially.
“The market overall appears to be on an upswing, in line with
our observations last quarter,” said Steve Hall, president and
chief AI officer of ISG. “The as-a-service market drove the growth
in Q1, led by a rebound in infrastructure-as-a-service, as
enterprises increased cloud spending and GenAI began to increase
cloud usage. Managed services, meanwhile, slightly underperformed
forecasts, with a rare dip that we see as more an anomaly than a
trend.”
Q1 Results by Segment
The as-a-service (XaaS) segment advanced 7 percent versus the
prior year, to $14.6 billion, breaking a streak of five straight
quarters of year-over-year declines. It was the segment’s highest
quarterly ACV since the third quarter of 2022.
Within the XaaS segment, infrastructure-as-a-service (IaaS)
broke through the $10 billion quarterly ACV mark for the first time
since the fourth quarter of 2022. At $10.7 billion, IaaS was up 11
percent year over year and 12 percent sequentially. Growth was
driven by the telecom, energy and travel and transportation
industries.
Software-as-a-service (SaaS), meanwhile, was down 2 percent
versus the prior year, to $4.0 billion. Human Capital Management,
up 3 percent year over year, outperformed the overall segment.
The managed services segment generated first-quarter ACV of
$10.0 billion, the sixth consecutive quarter at or above this mark.
Nonetheless, ACV was down 1.4 percent versus a strong prior-year
quarter – only the second time in the last 15 quarters managed
services has dipped into negative territory.
Within managed services, IT outsourcing (ITO) declined 2 percent
versus the prior year, to $6.8 billion – its lowest level in nearly
two years. Application development and maintenance (ADM), at
approximately 65 percent of ITO spend, continues to drive this
market segment. While the ACV of standalone ADM services was down
this quarter, the ACV of deals in which applications were bundled
with infrastructure was up 130 percent.
Business process outsourcing (BPO), meanwhile, rose 1 percent
compared with last year, to $3.2 billion. Engineering services ACV
was up 30 percent versus the prior year, while finance and
accounting outsourcing (FAO) ACV rose 13 percent.
A total of 710 managed services deals were signed in the first
quarter, down 1 percent. There were four mega deals (contracts with
ACV of $100 million or more) in the quarter, compared with eight
mega deals last year.
“Large deal activity was muted in the first quarter,” Hall said.
“Smaller deals also were impacted by a slowdown in discretionary
spending; we saw a 3 percent decline in deals valued at between $5
million and $30 million. The pause in discretionary spending at the
enterprise level continued to impact managed services and
consulting services in Q1.”
2024 Forecast
ISG is forecasting 3 percent growth for managed services, down
125 basis points from its January forecast, and maintaining its
forecast of 15 percent revenue growth for XaaS in 2024.
“Looking ahead to the rest of the year, economic conditions are
forecasted to be less volatile than in 2023, but challenges
persist,” Hall said. “The global economy is expected to slow down,
impacted by monetary policies to combat inflation, which is
expected to decline.
“In this environment, outsourcing could see a boost as companies
seek to balance cost management and service quality. Generative AI,
meanwhile, is poised to be a growth catalyst, with large
hyperscalers expected to manage increasing workloads. The data
layer, integral for training AI models, presents a prime
opportunity for service providers.”
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 86 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 1Q24 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/20240411615744/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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