Global IT, BPO spending down 8% in Q1
CONNECTICUT, UNITED STATES — Global IT and Business Process Outsourcing (BPO) spending fell eight percent to US$24.1 billion in the first quarter of 2023.
According to the latest ISG Index, the drop in spending was driven primarily by a decline in demand for traditional IT services, such as infrastructure and application development.
“This is really a tale of two markets,” said ISG President Steve Hall.
On the one side, the annual contract value (ACV) for managed services reached an all-time quarterly high of US$9.8 billion in the first quarter with 703 contracts and 237 restructured deals.
Within managed services, IT outsourcing ACV rose 7% to US$6.8 billion, while BPO contracts are down 10% to US$3 billion.
On the other hand, ACV for the cloud services market dropped by 13% to US$14.3 billion.
“We see enterprises focusing on optimizing the cloud-based services they have already committed to rather than adding new workloads to the cloud,” Hall said.
“On the cost side, hyperscalers really over-hired during the pandemic, and now they’re adjusting their operational expenses to fit today’s macro conditions and declining demand. That’s one of the reasons we’re seeing layoffs in big tech.
While ISG expects the decline in cloud service contracts to last through the second quarter, Hall is confident that the demand will start picking up in the second half of 2023.
