STAMFORD, Conn., April 11, 2018 /PRNewswire/ -- The
continuing strong demand for digital transformation services
propelled the global sourcing market to never-before-seen heights
in the first quarter, with annual contract value surging past the
previous quarterly high to exceed $12
billion for the first time ever, 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 first-quarter ACV for
the combined global market (including both as-a-service and
traditional sourcing) climbed 11 percent, to a record $12.2 billion. Although the global market has
surpassed $10.5 billion of ACV in
three of the past four quarters—reaching a record high of
$10.9 billion in the first quarter of
2017—it had never surpassed the $11
billion mark, let alone the $12
billion level.
"We're talking rarefied air here," said Steve Hall, partner and president of ISG. "If
the numbers this quarter tell us anything, it is that digital
transformation is a very real and growing phenomenon. Digital
technology is lowering costs and changing business models for
virtually all the world's leading enterprises, and there is no end
in sight. How organizations are adopting new business models, how
they have shifted toward a product-oriented mindset and what that
means to the broader sourcing market all point toward optimism for
continuing growth."
The global market's push to the $12
billion level was driven by 40 percent growth in the
as-a-service sector, which topped $5
billion in a quarter for the first time to reach
$5.9 billion of ACV. Both
infrastructure-as-a-service (IaaS) and software-as-a service
(SaaS), the two components of the as-a-service market, established
new quarterly highs. IaaS reached $4.6
billion of ACV, up 48 percent over last year, while SaaS ACV
was $1.3 billion, up 18 percent. The
new quarterly high for as-a-service is far beyond the $4 billion range in three of the last four
quarters, and nearly double the typical ACV of just two years
ago.
The traditional outsourcing market saw its ACV decline 6 percent
versus a year ago, to $6.3 billion,
roughly in line with ACV in four of the last five quarters,
indicating relative market stability. Information technology
outsourcing (ITO) produced ACV of $4.8
billion, down 3 percent, while business process outsourcing
(BPO) generated $1.5 billion, down 14
percent. The trend toward more contracts of shorter duration and
lower value continued, with a record 470 contracts signed during
the first quarter.
Over the trailing 12 months, the financial services sector
remained the largest global market for combined sourcing services,
with ACV of $9.8 billion (up 20
percent), followed by business services, with ACV of $6.9 billion (up 10 percent), and manufacturing,
with ACV of $6.8 billion (up 22
percent). The fastest-growing sector for sourcing was healthcare,
which saw its ACV climb 31 percent, to $3.7
billion. Telecommunications and media, with ACV of
$4.3 billion, was down 13
percent.
Americas
The Americas remains the world's largest sourcing market—a
position it has held since the beginning of 2016—with first-quarter
combined ACV surging 32 percent to a record $6.9 billion, continuing a trend that has seen
the region generate more than $6
billion of ACV in two of the last three quarters.
The traditional market reached a record $3.7 billion, up 31 percent, fueled by strength
in applications (ACV of $1.2 billion,
up 22 percent) and BPO (ACV of $947
million, up 47 percent). Traditional sourcing volume reached
an all-time high of 262 contracts. The as-a-service market climbed
32 percent, to $3.2 billion, setting
new records for IaaS (ACV of $2.3
billion, up 38 percent) and SaaS (ACV of $866 million, up 19 percent).
Europe, Middle East and Africa (EMEA)
The EMEA market slumped in the first quarter, with combined ACV
down 20 percent, to $3.8 billion,
capping the region's worst three-quarter stretch since 2007.
Although most of the region's markets were in positive territory
this quarter, that performance could not overcome declines in its
two largest markets, the UK and DACH. From an industry perspective,
the banking and financial services sector was down significantly,
along with the energy and telecommunications sectors.
Traditional sourcing, long the bellwether of the region, was
down 40 percent in the quarter, to $2.1
billion. The as-a-service space, meanwhile, reached a record
$1.7 billion, up 37 percent, with
strength in both the IaaS and SaaS segments.
Asia Pacific
Asia Pacific's combined ACV
came in at $1.5 billion, up 62
percent against a weak 2017 first quarter. It was the region's
second-best quarter ever, trailing only the record performance in
the 2017 third quarter. Overall growth was fueled by gains in the
ASEAN and China markets, and from
the banking, financial services and insurance sector, and the
manufacturing and telecommunications sectors.
Traditional sourcing was up 35 percent, to $463 million, but broke a string of three
straight $500 million-plus quarters.
As-a-service sourcing reached a record high of $1.02 billion, eclipsing the $1 billion level for the first time and up 78
percent over the prior year. Both the IaaS and SaaS segments turned
in record-setting results.
Forecast
"Going forward, we expect at least 20 percent ACV growth in the
as-a-service segment for the remainder of 2018, on the strength of
30 percent-plus growth in public cloud (IaaS) and nearly 15 percent
growth in SaaS," said Hall. "We expect traditional sourcing to grow
by more than 2 percent, with unevenness to continue across regions
and industries."
About the ISG Index™
Now in its 62nd consecutive quarter, the ISG Index™ provides a
quarterly review of the latest sourcing industry data and trends
for clients, service providers, analysts and the media. For more
than 15 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-as-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 1Q 2018 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
http://www.isg-one.com/research/research-detail-page/isg-index.
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 75 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; technology
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 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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SOURCE Information Services Group, Inc.