Americas Market Powered by Record Demand for Managed Services in Q3, ISG Index™ Shows

Enterprises, wary over uncertain economy, embrace sourcing as a hedge against rising costs

The Americas market for IT and business services was powered by record demand for managed services in the third quarter as enterprises maintain their focus on cost optimization amid uncertain economic conditions, 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 managed services climbed 25 percent, to a record $6.0 billion.

“The Americas turned in its best quarter ever for managed services,” said Todd Lavieri, ISG vice chairman and president of ISG Americas and Asia Pacific. “Demand was powered by a record $3.8 billion of new-scope ACV, up 31 percent from last year, while the ACV of restructured contracts rose 16 percent, to $2.2 billion. There was robust contracting activity as well, with 376 deals signed in the quarter, the second-best quarter ever for deal volume.”

Among the contracts signed in the quarter, the Americas produced four megadeals – contracts with annual value of at least $100 million – worth a combined $710 million of ACV.

The picture for cloud-based as-a-services (XaaS) solutions was not as rosy. For the third quarter, ACV in this segment was down 17 percent, to $6.2 billion, its third consecutive double-digit decline year over year in a quarter.

“Enterprises right now are looking to maximize the ROI they are getting from their existing cloud resources and solutions, rather than investing more,” Lavieri noted. “There was a surge in buying during the pandemic to support remote work; we’re seeing that level off for the time being.”

With a sluggish XaaS market, the combined market in the Americas – both managed services and XaaS – was flat in the third quarter, at $12.2 billion of ACV.

Within managed services, IT outsourcing (ITO) climbed 42 percent, to $4.8 billion of ACV, fueled by surging demand for application development and maintenance (ADM) services, with ACV of $3.4 billion, up 72 percent from the prior year. Business process outsourcing (BPO), meanwhile, shrank 16 percent, to $1.2 billion, with only engineering, research and development (ER&D) and finance and accounting services showing meaningful growth.

On the XaaS side, spending on infrastructure-as-a-service (IaaS) declined 25 percent, to $3.9 billion, while software-as-a-service (SaaS) rose 3 percent, to $2.4 billion.

Year-to-Date Results

The Americas’ combined market was down 7 percent through nine months, to $35.4 billion, on slowing demand for XaaS. It was the first time the region saw a decline in ACV for this period.

Managed services ACV reached a new record of $15.7 billion, up 6 percent. Within managed services, ITO advance 21 percent, to $11.6 billion, while BPO slid 20.5 percent, to $4.2 billion.

A total of 1,090 managed services contracts were signed year to date, up 3 percent, including 13 megadeals worth a combined $2 billion of ACV. Defensive sectors such as energy (up 62 percent) and healthcare and pharmaceuticals (up 120 percent) had record-high ACV year to date, while financial services declined 12 percent and manufacturing was down 9 percent.

XaaS spending year to date was down 16 percent, to $19.6 billion, the first time the XaaS market has declined in the Americas for the first nine months. IaaS slumped 20 percent, to $12.4 billion, and SaaS declined 6 percent, to $7.2 billion.

2023 Global Forecast

ISG raised its forecast for managed services growth by 40 basis points, to 5.4 percent for the year, and maintained its forecast for XaaS revenue growth in 2023 at 11.5 percent.

“From a macroeconomic perspective, we’re seeing slower decision-making, spending being stretched over longer periods of time, and persistent concerns with energy prices and the expectation of a prolonged period of high interest rates,” Lavieri said.

“With that said, clients continue to restructure their IT landscape to adopt multi-cloud environments and hybrid work arrangements. Businesses across industries are beginning to experiment with enterprise-grade GenAI use cases, although the procurement risks are many, while both the upside benefits and downside challenges still need further analysis. Given these scenarios, we expect the applications market to continue to expand in 2024.”

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 84 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, 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 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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