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Cloud Spending Drives Americas’ IT and Business Services Market in Q3, ISG Index™ Shows

$III #AsaService--Demand for cloud-based services, fueled by interest in GenAI, drove third-quarter IT and business services growth in the Americas, even as spending on managed services continued to s...

Business Wire

Region’s growth paced by GenAI-fueled XaaS demand, as managed services remains sluggish

STAMFORD, Conn.: $III #AsaService--Demand for cloud-based services, fueled by interest in GenAI, drove third-quarter IT and business services growth in the Americas, even as spending on managed services continued to slump, 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 third-quarter ACV for the combined market—including both cloud-based as-a-service (XaaS) and managed services—rose 7 percent, to $13.2 billion, the region’s highest quarterly mark since a record first quarter of 2022. Since hitting bottom in the fourth quarter last year, the market has rebounded sequentially for three straight quarters, including by 8 percent in the most recent quarter.

Third-quarter growth, overall, was driven by XaaS spending, which climbed 29 percent, to nearly $8.0 billion, the second straight quarter XaaS ACV has exceeded $7 billion. Managed services ACV, meanwhile, fell 15 percent versus the prior year, to $5.2 billion, but was up 10 percent sequentially from the second quarter.

Managed services contract volume, at 328 deals, was down 15 percent from the prior year. There were three mega-deals (with ACV of at least $100 million) signed in the quarter, compared with four such deals in the prior year. The ACV of these mega-deals was down 55 percent from last year.

Managed services growth continued to be held back by slowing demand from the banking, financial services and insurance (BFSI) sector, the region’s largest industry for IT and business process outsourcing. BFSI ACV fell 3.5 percent against a soft year-ago quarter, as other industries advanced, including manufacturing (up 81 percent), retail (up 35 percent) and travel, transport and leisure (up 175 percent).

“Enterprises are continuing to spend more on cloud-based services, seeking to advance their data capabilities as they prepare to adopt generative AI at scale,” said Todd Lavieri, ISG vice chairman and president of ISG Americas and Asia Pacific. “The financial services industry was cautious with investment as they awaited clarity on the direction of interest rates. As a result, managed services demand remained modest. With an improving interest rate and economic environment, we see that changing in the coming year.”

Results by Segment

Within managed services, IT outsourcing (ITO) ACV declined 19 percent, to $3.9 billion, as growth in data center and managed network services was offset by double-digit declines in application development and maintenance (ADM) and other service lines. ACV for business process outsourcing (BPO), meanwhile, was up 2 percent, with particularly strong growth in customer engagement, HR outsourcing and industry-specific services offsetting declines in other areas.

On the cloud side, infrastructure-as-a-service (IaaS) ACV climbed 44 percent, to $5.6 billion, and software-as-a-service (SaaS) was up 3 percent, to $2.3 billion.

Nine-Month Results

The Americas’ combined market rose 5 percent year to date, to $37.4 billion, compared with an 8 percent year-over-year decline for the same period last year.

Managed services ACV declined 7 percent, to $15.0 billion, on 1,046 contracts, down 6 percent versus the prior year. Nine mega-deals were awarded during the period, compared with 13 such deals last year. Within managed services, ITO was down 8 percent, to $10.7 billion, while BPO was down 5 percent, to $4.3 billion.

XaaS spending year to date was up 15 percent, to $22.3 billion, with IaaS up 23 percent, to $15.3 billion, and SaaS down slightly (0.6 percent), at $7.0 billion.

2024 Forecast

For the full year, ISG is maintaining its forecast for 2 percent revenue growth for managed services, and 14 percent revenue growth for XaaS. The firm sees stronger growth in 2025.

“Despite a strong third quarter, we are maintaining our full-year forecast due to continued mixed signals in the market, especially softness in the BFSI sector,” said Lavieri. “Recent rate cuts by the Fed and European Central Bank are expected to boost IT spending in the coming year, and other factors, such as the growing interest in GenAI, increased server shipments and the reacceleration of hyperscaler revenues, all point to a more positive outlook in 2025.”

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 88 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, 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.

Fonte: Business Wire

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