Combined market up 4% from Q3, but down 1% year on year

Managed services generates record full-year ACV, up 4%

Demand for IT and business services in Europe dipped slightly in the fourth quarter, but was up sequentially from the third quarter, indicating the start of a potential 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.

The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market (both managed services and cloud-based as-a-service) at US $7.2 billion for the fourth quarter, down 1 percent from the prior year, but up 4 percent from the third quarter.

“The European market appears poised for a rebound,” said Steve Hall, president, ISG EMEA. “Although down year on year against some tough comps, most segments showed positive sequential growth in the fourth quarter. We also saw growth in new-scope awards and a drop in contract restructurings year on year. This could indicate a bottoming-out of the market, as we begin to move past aggressive cost optimization and start to see new shoots of investment.”

Hall said several signs point to a better 2024. “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.”

Q4 Results by Segment

Managed services ACV for the fourth quarter came in at US $3.9 billion, up 7 percent versus the prior year. There were 268 managed services contracts signed in the quarter, up 3.5 percent, including three mega deals (contracts with ACV of US $100 million or more). Although the number of such deals was even with a year ago, the ACV of this year’s mega deals was 7 percent higher. The ACV of new scope awards was US $2.7 billion, up 13 percent year on year, while that of restructured contracts fell 4.5 percent, to US $1.2 billion.

Within managed services, IT outsourcing (ITO) advanced 10 percent, to US $3.0 billion, driven by strength in applications development and data center services, while business process outsourcing (BPO) dipped 2 percent, to US $929 million.

ACV in the as-a-service (XaaS) segment fell 8 percent versus the prior year, to US $3.3 billion, but was up 1 percent from the prior quarter, the second straight quarter it rose sequentially. Within this segment, infrastructure-as-a-service (IaaS) fell 15 percent, to US $2.2 billion, while software-as-a-service (SaaS) rose 8 percent, to US $1.1 billion.

Full-Year Results

EMEA’s combined market ACV was US $29.0 billion, down 3 percent over the prior year. It was the first time since 2016 EMEA had a down market for the full year.

Managed services had a record year, with ACV of US $15.9 billion, up 4 percent. ITO, at US $12.0 billion, was up 4 percent, while BPO, at US $3.9 billion, was up 3 percent. A total of 1,093 managed services contracts were awarded in 2022, even with the prior year. Twelve of those were mega deals, down from 14 in the prior year but up 40 percent by total ACV. Among sectors, financial services, up 26 percent, and energy, up 30 percent, drove the market.

The XaaS segment generated ACV of US $13.1 billion, down 9 percent, the first time XaaS ACV fell in the EMEA region for the full year. IaaS fell 15 percent, to US $8.9 billion, while SaaS rose 4 percent, to US $4.2 billion. XaaS accounted for 45 percent of the combined market in 2023, down from 49 percent in 2022.

Geographic Performance

In the fourth quarter, the region’s largest market, the U.K., generated US $1.3 billion of managed services ACV, up 54 percent versus the prior year. It was the fourth consecutive quarter ACV in the U.K. topped US $1 billion – a first. France, the region’s third-largest market, produced ACV of US $801 million, up 67 percent, while DACH, the region’s second-largest market, saw its ACV decline 21 percent, to US $730 million

For the full year, the U.K. generated US $5.6 billion of managed services ACV, its second-best year ever, behind 2012. The Benelux market was the only other geographic market in positive territory for the year, up 16 percent, to US $1.2 billion. DACH was down 23 percent, to US $2.9 billion, while France dipped 4 percent, to US $2.2 billion.

2024 Global 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. For more information about the ISG Index, visit this webpage.

The 4Q23 Global ISG Index results were presented during a webcast on January 18. 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.

Press:

Philipp Jaensch, ISG +49 151 730 365 76 philipp.jaensch@isg-one.com

Will Thoretz, ISG +1 203 517 3119 will.thoretz@isg-one.com

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