The global stage for IT and business services has staged a resounding comeback in the third quarter, reclaiming its spot at the pinnacle after a prolonged lull that bottomed out over a year ago. The recent report from Information Services Group (ISG), a prominent global technology research and advisory firm, reveals a triumphant return to form for the industry.
The latest data from the global ISG Index™ illuminates the landscape – third-quarter ACV for the combined global market surged to a record $26.7 billion, marking a remarkable 15% increase from the previous year. This achievement represents the zenith of performance, surpassing its previous peak of $26.4 billion in the first quarter of 2022.
A Redemptive Quarter: Reflections from the Industry Leader
Steve Hall, the president and chief AI officer of ISG, aptly describes this quarter as redemptive. After navigating the economic uncertainty of the past 27 months, the managed services market scaled new heights in Q3. Despite this progress, the sector faces headwinds in the BFSI (banking, financial services, and insurance) domain – the primary vertical market for outsourcing.
Hall notes, “The managed services market reached a new quarterly high but is being held back by softness in the BFSI sector. Meanwhile, the as-a-service segment continues its remarkable turnaround as more enterprises embrace the cloud for their GenAI initiatives.”
The XaaS Surge: A Paradigm Shift
Within the as-a-service (XaaS) domain, there was a substantial 23% spike from the previous year, propelling figures to $15.8 billion. This surge, which saw a 7% increase quarter over quarter in Q3, reflects a consistent upward trajectory since rebounding from a downturn in the third quarter of the previous year.
Notably, infrastructure-as-a-service (IaaS) witnessed a phenomenal 30% growth year over year, reaching $11.9 billion – its strongest performance since the first quarter of 2022. The upswing in IaaS ACV owes much to advancements in AI technology, fueling investment in cloud-based AI platforms. The Big Three hyperscalers – AWS, Microsoft Azure, and Google Cloud – rebounded impressively, with third-quarter ACV soaring 49% from the previous year, hitting a record high of nearly $9 billion.
On the other hand, software-as-a-service (SaaS) recorded figures of $3.9 billion, a 5% increase from the prior year but a flat performance compared to the second quarter of 2024.
Managed Services Ascend to New Peaks
The managed services segment demonstrated its resilience by garnering a record $10.9 billion in ACV in Q3, marking a 5% surge from the previous year and an almost 8% leap from the prior quarter. This growth trajectory underscores a sustained period of expansion, with the segment posting year-over-year advancement in 15 of the past 17 quarters.
The quarter saw a total of 690 managed services contracts awarded, a 4% increase from the previous year but a 5% dip sequentially. Noteworthy were the 9 mega-deals (contracts exceeding $100 million), the most awarded in a third quarter over the past seven years. While the number of mega-deals increased from the previous year, the total ACV of these deals experienced a 15% decline. Conversely, the volume of smaller deals (ranging from $5 million to $10 million in ACV) saw an 8% uptick from the prior year.
Within the managed services realm, IT outsourcing (ITO) remained stable compared to the prior year at $8.2 billion but leaped 5% from the second quarter. Segments such as application development and maintenance (ADM) and data center services offset declines in other areas by posting 5% and 64% year-over-year growth, respectively.
Business process outsourcing (BPO) saw a robust 20% annual increase to $2.7 billion and a 14% sequential rise, primarily fueled by escalating demand for customer engagement and human resources outsourcing services.
Conclusive Insights on Nine-Month Progress
Year to date, the combined market boasted an ACV of $75.7 billion, up 8.5% from the previous year, showcasing a stark contrast to the 9% decline recorded in the equivalent period last year.
Managed services ACV stood at $31.1 billion, a modest 1.3% increase. The number of managed services awards reached 2,126, a 3% uptick, spearheaded by a 4% growth in new-scope contracts. However, the count of mega-deals slipped from 26 last year to 23, following subdued activity in the first quarter of 2024.
Industry-wise, the travel, transport, leisure, manufacturing, and energy sectors witnessed the most robust growth in managed services ACV, while the financial services sector – a major player in outsourcing – experienced a decline exceeding 10%.
On the cloud front, XaaS ACV hit $44.7 billion, marking a 14% rise from the previous year. IaaS flourished by 19%, totaling $33.2 billion, whereas the SaaS market saw a modest 2% increase, reaching $11.5 billion.
Looking Ahead: The 2024 Forecast
ISG maintains its forecast for the full year, with a projected 2% revenue growth for managed services and a robust 14% revenue growth for XaaS. An even brighter outlook awaits in 2025.
Despite the robust third quarter, the maintenance of the full-year forecast is attributed to mixed market signals, particularly the softness prevalent in the BFSI sector. The recent rate cuts by the Fed and European Central Bank are predicted to inject vigor into IT spending in the upcoming year, supported by growing interest in GenAI and other transformative technologies.
Positive Projections: A Look Into the 2025 Tech Industry Landscape
About the ISG Index™
The ISG Index™ serves as the golden standard for insightful market intelligence within the global tech and business services sector. For an astounding 88 quarters without pause, it has unraveled the freshest industry insights for financial analysts, tech buyers, service providers, and the like.
Key Insights and Projections
Foregrounded by booming server shipments and a resurgence in hyperscaler revenues, market experts are forecasting a sunnier outlook as we edge closer to the horizon of 2025. The surge in server shipments, an essential backbone of the tech infrastructure, is akin to a robust heartbeat that promises vitality and growth. Likewise, the reacceleration of hyperscaler revenues hints at a market regaining its strength, akin to a phoenix rising from the ashes with newfound vigor.
The Rise of Tech Giants
As we delve into the tech landscape of 2025, the resurgence of hyperscaler revenues conjures thoughts of tech titans flexing their muscle in an arena where dominance is key. These giants, with their immense computing power and cloud services, sit at the apex of technological prowess, casting a long shadow over the industry’s lesser players.
About ISG
ISG (Information Services Group) III stands tall as a premier global technology research and advisory powerhouse. Catering to a clientele exceeding 900, with 75 of the Fortune Global 100 among them, ISG embodies a commitment to propelling corporations, governmental bodies, and tech firms towards operational excellence and accelerated growth. Offering a spectrum of digital transformation services, from AI to cloud solutions and data analytics, ISG navigates the digital realm with finesse.