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ISG Index™: Global Sourcing Market Powered by Record Demand for Cloud-Based Services in Q3

Global as-a-service contract value up 19%, to record $7.1 billion

Americas has best quarter ever, up 25% and surpassing $7 billion of ACV for first time

STAMFORD, Conn., Oct. 9, 2019 /PRNewswire/ -- Record global demand for cloud-based services and a record-setting quarter in the Americas propelled the global sourcing market to double-digit growth in the third quarter, 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 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 as-a-service and managed services) rose 13 percent, to $13.8 billion. It was the third consecutive quarter the combined global market surpassed $13 billion in ACV.

Cloud-based, as-a-service sourcing set a new quarterly high, with $7.1 billion of ACV, up 19 percent. It was the first time ever as-a-service surpassed $7 billion of ACV in a quarter. This market was lifted by record demand for Infrastructure-as-a-Service (IaaS) solutions, with ACV of $5.3 billion, up 22 percent to a new quarterly high. Software-as-a-Service (SaaS), meanwhile, rose 11 percent versus last year, to $1.8 billion, but was flat sequentially with the 2019 second quarter.

Managed services, with ACV of $6.7 billion, rose 7 percent against a soft prior-year quarter. The third-quarter result was off 5 percent sequentially from the second quarter, on volume of 411 contracts, down 1.7 percent from the prior year. Robust demand for business processing outsourcing (BPO), which rose 53 percent, to $1.6 billion of ACV in the quarter, offset weakness in the IT outsourcing (ITO) segment, down 2 percent, to $5.1 billion.

ISG sees continuing positive trends in the global sourcing market, even as dark economic clouds gather on the horizon. "Global recession concerns continue amid uncertainty fed by Brexit, unrest in Asia, geopolitical events, and trade and tariff wars," said Steve Hall, partner and president, ISG. "Though companies want to be recession-ready, they continue to spend money on modernizing their infrastructure and creating digital products. That leaves us optimistic about the broader market."

Year to date, ISG reported combined market ACV of $41.6 billion, up 11 percent versus the prior year. Growth was driven primarily by as-a-service, with record ACV of $20.8 billion, up 22 percent. Within as-a-service, IaaS was up 27 percent, to $15.4 billion, and SaaS rose 9 percent, to $5.4 billion – both records through nine months. Managed services, also at $20.8 billion of ACV for the nine months, was up 2 percent versus the prior year. ITO was off slightly, down 1 percent, to $16.0 billion, while BPO advanced 15 percent, to $4.8 billion.

Americas

Combined ACV in the Americas surpassed $7 billion for the first time ever in a quarter, reaching a record $7.7 billion, up 25 percent. Growth was equally strong in both the as-a-service and managed services segments; as-a-service grew 26 percent, to $3.8 billion, while managed services grew 24 percent, to $3.9 billion. Among sub-segments, the region saw double-digit growth across the board: IaaS climbed 33 percent, to $2.7 billion; SaaS advanced 12 percent, to $1.1 billion; ITO rose 27 percent, to $3.2 billion, and BPO grew 12 percent, to $697 million.

Europe, Middle East and Africa (EMEA)

EMEA turned in its weakest result since the first quarter of 2018, with combined market ACV of $4.1 billion, down 7 percent versus the prior year. The as-a-service segment grew 10 percent, to $1.8 billion, with IaaS up 12 percent, to $1.3 billion, and SaaS up 5 percent, to $473 million. Managed services, however, slumped 17 percent, to $2.3 billion, as ITO fell 39 percent, to $1.5 billion, even as BPO soared more than 150 percent, to $784 million. ACV growth in the Nordics and Benelux was not enough to offset double-digit declines in the region's three largest markets – the U.K., DACH and France.

Asia Pacific

Combined market ACV in Asia Pacific rose 20 percent, to $2.0 billion, boosted especially this quarter by strong growth in the managed services segment. Managed services ACV was $632 million, up 35 percent, propelled by 46 percent growth in ITO services, to $543 million. China and India produced strong gains, which offset weaker results in Australia/New Zealand and Southeast Asia. As-a-service, at $1.4 billion of ACV, up 14 percent, continues to dominate the overall market, with both IaaS ($1.2 billion, up 13 percent) and SaaS ($206 million, up 17 percent) growing at double-digit rates.

Forecast

ISG is forecasting the global as-a-service market will grow 22.2 percent in 2019, up slightly from last quarter's forecast, while it projects the overall IT and business services market will grow 2.6 percent for the year, down about 50 basis points from the firm's second-quarter forecast.

"We've tempered our forecast a bit for the overall IT and business services market," said Hall. "This takes into account FX headwinds due to the strong U.S. dollar and possible top-line softness by a few of the largest providers."

About the ISG Index™

Now in its 68th consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, academia and the media. For the last 17 years, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.

The 3Q 2019 ISG Index was presented during a conference call and webcast for media and analysts today. To listen to an audio replay of the call and view presentation slides, please visit this webpage.

For a snapshot of the 3Q19 ISG Index results, view this infographic.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 70 of the top 100 enterprises in the world, 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 1,300 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.

Cision

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