After Prolonged Downturn, Global IT, Business Services Market Reaches New High in Q3: ISG Index™

Combined global market ACV up 15%, to record $26.7 billion

Market driven by XaaS up 23%; managed services up 5%

ISG maintains 2024 forecast; firm sees stronger growth in 2025

After Prolonged Downturn, Global IT, Business Services Market Reaches New High in Q3: ISG Index™

Press:

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

The global market for IT and business services achieved record results in the third quarter, climbing back to the pinnacle of performance following an extended slump that reached bottom more than a year ago, 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 third-quarter ACV for the combined global market (both managed services and cloud-based as-a-service) reached a record $26.7 billion, up 15 percent versus the prior year and at its highest level since its previous peak of $26.4 billion in the first quarter of 2022. It was the fifth straight quarter the global market has advanced sequentially since hitting a low point of $23.2 billion in the second quarter last year.

“This was a redemptive quarter for the IT and business services industry, as the sector made up all the ground it lost to economic uncertainty over the last 27 months,” said Steve Hall, president and chief AI officer of ISG. “The managed services market reached a new quarterly high but is being held back by softness in the BFSI (banking, financial services and insurance) sector, the largest vertical market for outsourcing. Meanwhile, the as-a-service segment continues its remarkable turnaround as more enterprises see the cloud as the perfect test bed for their GenAI rollouts.”

Third-Quarter Results by Segment

The as-a-service (XaaS) segment climbed 23 percent versus the prior year, to $15.8 billion, its strongest year-over-year growth since the second quarter of 2022. The segment, up 7 percent quarter over quarter in Q3, has accelerated steadily on a sequential basis since hitting a trough in the third quarter last year.

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV surged 30 percent versus the prior year, to $11.9 billion, its best quarter since the first quarter of 2022. The surge in IaaS ACV was driven largely by rapid advances in AI, which are boosting spending on cloud-based AI platforms. The Big Three hyperscalers – AWS, Microsoft Azure and Google Cloud – continued to recover, with third-quarter ACV up 49 percent versus the prior year to a record high of just under $9 billion.

Software-as-a-service (SaaS), meanwhile, came in at $3.9 billion, up 5 percent from the prior year but flat compared with the second quarter of 2024.

“SaaS companies are grappling with weaker demand and slowing revenue growth,” Hall said. “The shift toward AI has led to budget reallocations and pauses in spending as boards reassess AI strategies and enterprises move from seat-based to consumption-based models.”

The managed services segment generated a record $10.9 billion of ACV in the third quarter, up 5 percent versus the prior year, and up nearly 8 percent from the prior quarter – continuing a period of sustained growth that has seen the segment advance year over year in 15 of the past 17 quarters.

A total of 690 managed services contracts were awarded during the quarter, up 4 percent versus the prior year but down 5 percent sequentially. Among the contracts were 9 mega-deals (contracts with ACV of $100 million or more), the most awarded in a third quarter in the last seven years. Although the number of mega-deals was higher than last year (8), the total ACV of those deals was down 15 percent from the prior year. On the other end of the spectrum, the number of smaller deals (those in the $5 million to $10 million ACV range) was up 8 percent versus the prior year, while the volume of new-scope awards was up 12 percent, as the ACV of those awards reached a record $7.2 billion in the quarter.

Within managed services, IT outsourcing (ITO) was essentially level with the prior year, at $8.2 billion, but was up 5 percent from the second quarter. Application development and maintenance (ADM) (up 5 percent versus the prior year) and data center services (up 64 percent) offset year-over-year declines in other areas.

Business process outsourcing (BPO) climbed 20 percent year over year, to $2.7 billion, and was up 14 percent sequentially, led by surging demand for customer engagement and human resources outsourcing services.

Nine-Month Results

Year to date, the combined market generated ACV of $75.7 billion, up 8.5 percent from the prior year, compared with a 9 percent decline in the same period last year.

Managed services ACV, at $31.1 billion, was up 1.3 percent. The number of managed services awards, 2,126, was up 3 percent, led by 4 percent growth in the number of new-scope contracts. The volume of mega-deals declined from 26 last year to 23 this year, owing to weak activity in the first quarter of 2024.

Within managed services, ACV in the ITO segment was $22.7 billion, up 0.2 percent versus the prior year, while BPO, at $8.4 billion, was up 4.5 percent.

Among industries, managed services ACV growth was strongest in the travel, transport and leisure, manufacturing and energy sectors, even as the financial services sector – the biggest industry by ACV for outsourcing – fell more than 10 percent.

On the cloud side, XaaS ACV, at $44.7 billion, was up 14 percent versus the prior year. The IaaS market rose 19 percent, to $33.2 billion, while the SaaS market was up 2 percent, to $11.5 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 Hall. “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.

The 3Q24 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, 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.