The latest state-of-the-industry report from Information Services Group (ISG) revealed global demand for managed services hit a new peak in the second quarter. This is despite lower spending on cloud services that pulled down the overall IT and business services market, according to ISG.
Data from the ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, showed that second-quarter ACV for the combined global market – both cloud-based as-a-service (XaaS) and managed services – was $22.7 billion, down 9% from the prior year – the third straight quarter the market has seen a year-over-year decline, ISG’s report found.
Managed services hit a new quarterly high of $10.0 billion, up 6% from the prior year – the tenth time in the last 11 quarters this segment has grown year-over-year, the report showed. Yet the overall market was down as slowing demand for cloud-based services accelerated, according to the report. ACV for this segment declined 18%, to $12.6 billion, after reaching a peak of more than $16 billion in the first quarter of 2022, according to the report.
“Managed services continues to be resilient in the face of economic uncertainty,” said Steve Hall, president of ISG, in a prepared statement. “We are seeing continued strong demand in this segment as enterprises use managed services as a lever for cost optimization. Contract renewals and extensions remain robust, and mega-deal ACV also came in very strong for the quarter.”
During the second quarter, 10 mega-deals (managed services contracts with an annual value of more than $100 million) were signed, the ISG report showed. The 10 contracts were worth a combined $1.7 billion of ACV, up 35% from the combined value of the 10 megadeals signed in the second quarter of 2022. In all, 703 managed services contracts were signed in the second quarter, up 6% from the prior year, according to ISG.
Within managed services, global ACV for IT outsourcing (ITO) in the quarter rose 19% to a record $7.7 billion, fueled by growth in application development and maintenance (ADM) services, even as ACV for business process outsourcing (BPO) fell 24%, to $2.3 billion, due to a significant decline in industry-specific services from the prior year, according to the report.
Within XaaS, ACV for infrastructure-as-a-service (IaaS) was down 22%, to $8.7 billion, as limits on discretionary spending slowed cloud migrations, while ACV for software-as-a-service (SaaS) dropped 7%, to $3.9 billion, despite the top 10 SaaS providers outperforming the broader SaaS market for the second quarter in a row, according to the report.
The 2Q23 Global ISG Index results were presented during a webcast today. To view a replay of the webcast and download presentation slides, visit this webpage.