Combined market ACV in Q4 down 3% from prior
year, to $23.4 billion
Managed services ACV flat, while XaaS
declined 6 percent in Q4
Full-year managed services ACV hits record
$40.7 billion
ISG forecasts 15% growth for XaaS, 4.25%
growth for managed services in 2024
Global spending on IT and business services was down slightly in
the fourth quarter amid early signs of a possible market rebound,
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 fourth-quarter ACV for the combined global market (both
managed services and cloud-based as-a-service) was $23.4 billion,
down 3 percent versus the prior year. Although it was the fifth
straight quarter the combined market has declined year over year,
the rate of decline continues to slow and the market may be poised
for an upswing in 2024, ISG said.
“We’re seeing a sequential improvement over the last two
quarters, indicating the market may have bottomed out and is ready
to rise,” said Steve Hall, president of ISG. “Conditions are right
for a turnaround. Inflation is cooling rapidly and central banks
are planning interest rate cuts. That should create a more friendly
environment for enterprise spending and capital deployment in
2024.”
Hall noted the rise of artificial intelligence also will have a
positive impact on technology spending in the coming years. “As AI
technology matures and new use cases are identified, it will have a
massive impact on the IT and business services and software
industries. AI is the next great leap forward.”
Q4 Results by Segment
Fourth-quarter ACV in the managed services segment was $10.0
billion, up less than 1 percent versus the prior year – the softest
quarter for this segment in 2023. A total of 677 contracts were
awarded in the quarter, down 5 percent. Although volume was down,
there were eight mega-deals (contracts with ACV of $100 million or
more) in the quarter, up 33 percent from the prior year, with a
total ACV of $1.1 billion, up 51 percent.
Hall noted the number of smaller contracts (those between $5
million and $30 million of ACV) was down for the quarter, as was
the ACV of new-scope awards. On the other hand, ACV for
restructured contracts was up more than a third from the prior
year. “We continue to see elevated levels of contract
restructurings, as enterprises continue to focus on cost
optimization,” he said.
Within managed services, IT outsourcing (ITO) ACV was up 12
percent, to $7.7 billion, while business process outsourcing (BPO)
was down 25 percent, at $2.3 billion.
As-a-service (XaaS) spending dropped 6 percent in the fourth
quarter, to $13.4 billion of ACV, but ISG noted the rate of decline
slowed from double-digits in the previous three quarters, and ACV
was up 3 percent sequentially from the third quarter.
Infrastructure-as-a-service (IaaS) fell 10 percent, to $9.4
billion, while software-as-a-service (SaaS) rose 4 percent, to $4.0
billion.
Full-Year Results
Combined market ACV for the full year was a $94.3 billion, down
6 percent, its first down year since ISG added coverage of XaaS
spending in 2015.
Managed services ACV advanced 5 percent, to a record $40.7
billion, including a record $15.4 billion of restructured ACV, up
19 percent. Deal volume was 2,770 contracts, down 1 percent versus
the prior year. Among the contracts were 34 mega-deals, with total
ACV of $5.9 billion, the highest number of such awards and ACV
since 2014. Within managed services, ITO ACV climbed 13 percent, to
$30.4 billion, fueled by growth in application development, while
BPO slid 14 percent, to $10.3 billion.
XaaS generated $53.6 billion in ACV, down 12.5 percent – the
first year it posted an annual decline. Within this segment, IaaS
was down 16 percent, to $38.0 billion, while SaaS fell 3 percent,
to $15.5 billion. XaaS accounted for 57 percent of combined market
ACV, down from 61 percent a year ago.
2024 Forecast
ISG is forecasting 4.25 percent growth for managed services and
15 percent revenue growth for XaaS in 2024.
“We expect spending for application modernization and business
transformation projects led by GenAI to continue at high levels in
2024. Public cloud spending should accelerate as optimizations
phase out. We also expect small discretionary deals to recover, as
well as financial services industry spending to rebound,” Hall
said.
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 85 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.
The 4Q23 Global ISG Index results were presented during a
webcast today. To view a replay of the webcast and download
presentation slides, 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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version on businesswire.com: https://www.businesswire.com/news/home/20240118343006/en/
Press: Will Thoretz, ISG +1 203 517 3119
will.thoretz@isg-one.com Julianna Sheridan, Matter Communications
for ISG +1 978-518-4520 isg@matternow.com
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