Managed services surge as cloud spending slumps in Asia Pacific
SYDNEY, AUSTRALIA — The demand for traditional managed services in Asia Pacific (APAC) is escalating while cloud services spending is declining, said tech research and consulting firm Information Services Group (ISG).
According to the Asia Pacific ISG Index — which tracks commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more — the second quarter witnessed a drop of 18% in ACV for the combined market (XaaS and managed services), amounting to $4.0 billion. This decrease was mainly attributed to a steep decline in the XaaS segment.
In contrast, managed services experienced a substantial boost, with a year-over-year increase of 30% in Q2 ACV, reaching $1.1 billion.
The quarter saw the awarding of 62 contracts, with the ACV of restructured contracts and new scope awards increasing by 45% and 21%, respectively.
IT outsourcing (ITO) observed a remarkable ACV increase of 58%, primarily due to the strength of application development and maintenance (ADM), data centers, and managed network services.
“Enterprises in Asia Pacific are increasing their spending on traditional IT and business services outsourcing as a lever for cost optimization in an uncertain economy,” said ISG APAC Partner and Regional Leader Scott Bertsch.
Meanwhile, Bertsch added that the cloud sector continues to “suffer a reversal of fortune” as companies are now rationalizing their cloud costs and postponing discretionary cloud spending.
Looking ahead, ISG maintained its growth forecast for managed services at 5% in 2023, though it lowered its forecast for XaaS revenue growth to 11.5%, hinting at a mixed outlook for the IT and BPO sectors.
