Strong demand for managed services and XaaS drives overall market ACV up 32%
ISG maintains full-year growth forecast and expects better performance in 2025
LONDON, Oct. 18, 2024–(BUSINESS WIRE)–Europe’s IT and business services market showed signs of momentum in the third quarter, even as the leading financial services sector remains in demand. The market is weak, according to the latest State of the Industry report from Information Services Group (ISG) (Nasdaq: III), one of the world’s leading technology research and advisory firms, where annual contract value and trading volume reached new highs.
According to the EMEA ISG Index™, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, the ACV of the combined market (both managed services and cloud-based as-a-service) increased by 32%; The third quarter saw a record US$8.9 billion. Since bottoming out in the third quarter of last year, the aggregate market has grown for four consecutive quarters (including 14% sequentially in the third quarter) and reached record ACV.
“European markets have rebounded from a long period of weakness, with record growth in the third quarter after several quarters of weak growth,” said Steve Hall, president of ISG EMEA. “While we see this as the beginning of a period of accelerated growth, there are some caveats, most notably the continued weakness in spending in the BFSI (banking, financial services and insurance) sector. “With interest rate cuts, we expect conditions in the industry to improve.”Next year looks much brighter.” ”
Third quarter performance by segment
Managed Services ACV increased 35% year-over-year to a record $4.9 billion and increased 22% compared to the second quarter. DACH region.
“Without these transactions, which should be treated as temporary outliers, third-quarter managed services ACV would have increased 15% to $4.2 billion,” Hall said.
A record 305 managed services agreements were signed in the third quarter, an increase of 30% year-over-year, including six mega-deals, double the value of the same period last year. This is the highest amount the region has produced in 11 years. The annual value of these transactions was US$1.1 billion, an increase of 39% year-on-year and the highest level in nearly four years.
Other deal areas also performed well, with the number of small deals in the USD 5 million to USD 10 million range increasing by 40%, the number of contracts in the new range increasing by 26%, and the number of contract restructurings increasing by 39%.
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Within managed services, IT outsourcing (ITO) grew 32% to USD 3.6 billion, driven by double-digit growth across nearly all service lines, including application development and maintenance (ADM), infrastructure, and data center services. It is the driving force. The only exception was bundled infrastructure and ADM services, which saw a slight decline in the quarter.
Business process outsourcing (BPO) surged 46% to USD 1.3 billion, driven by strong growth in engineering, research and development, human resources outsourcing, and customer engagement services.
By industry, ACV for managed services was high in the energy, retail, travel, transportation, and leisure sectors. Notable industries with declines include financial services (BFSI), manufacturing, media, and telecommunications.
As-a-Service (XaaS) ACV increased 27% year over year to USD 4.04 billion, marking the first quarter in which cloud services spending in the region exceeded USD 4 billion. The segment grew year-over-year for the third consecutive quarter and recorded double-digit growth for the second consecutive quarter, with growing interest in GenAI driven by rising cloud demand.
Within this segment, Infrastructure as a Service (IaaS) increased by 36% to nearly USD 3 billion, while Software as a Service (SaaS) increased by 8% to USD 1.1 billion.
geographical performance
Although down 38% year over year, the UK, the region’s largest managed services market, recorded seven consecutive quarters of over USD 1 billion, with Q3 ACV of USD 1.02 billion . Meanwhile, the DACH market (Germany, Austria and Switzerland) had its second-strongest quarter ever, up 308% quarter-on-quarter, generating ACV of USD 2 billion, supported by three unusually high-value megadeals. It became. France (up 60%) and Benelux (up 161%) also had strong quarters.
9 month results
As of nine months, aggregate market ACV increased 12% to USD 24.2 billion, an all-time high.
Managed services were $12.8 billion, up 8% thanks to 12 large deals out of a record 876 managed services contracts signed since the beginning of the year. Excluding the three high-value blockbuster deals completed in the DACH market in Q3, managed services ACV would have been up 2% year-to-date. In managed services, ITO increased 10% to USD 9.7 billion and BPO increased 4% to USD 3.1 billion.
Meanwhile, XaaS grew 17% to $11.4 billion. In this segment, the IaaS market grew by 23% to USD 8.2 billion and the SaaS market grew by 3.5% to USD 3.2 billion.
Predictions for 2024
For the full year, ISG maintains its forecast for managed services revenue to grow 2% and XaaS revenue to grow 14%. The company is expected to see even stronger growth in 2025.
“Despite a strong third quarter, we maintain our full-year forecast as there continue to be mixed signals in the market, particularly the weakness in the BFSI sector,” Hall said. “IT spending is expected to increase next year due to recent interest rate cuts by the Federal Reserve and European Central Bank, and other factors such as increased interest in GenAI, increased server shipments, and a reacceleration of hyperscaler revenues are all , indicating a more positive picture” outlook for 2025. ”
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The ISG Index™ is recognized as the authoritative source of market information for the global technology and business services industry. For 88 consecutive quarters, we have detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities, and the media.
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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 companies, ISG is committed to helping businesses, public sector organizations, and service and technology providers achieve operational excellence and faster growth. We are committed to The company specializes in digital transformation services such as AI, cloud, and data analytics. Procurement recommendations. Managed governance and risk services. Network carrier service. Strategic and operational design. Change management. Market intelligence and technology research and analysis. Founded in 2006 and headquartered in Stamford, Conn., ISG employs more than 1,600 digitally enabled professionals with operations in more than 20 countries. This global team is known for innovative thinking, market impact, deep industry and technology expertise, and world class. Research and analysis capabilities powered by the industry’s most comprehensive market data. For more information, please visit www.isg-one.com.
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Will Tretz, ISG
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