Global IT, business services spending up 4% in Q1: ISG
CONNECTICUT, UNITED STATES — Global spending on IT and business services increased significantly in the first quarter of 2024 due to a resurgence in demand for cloud-based services.
In its latest industry report, Information Services Group (ISG) revealed that the annual contract value (ACV) for the combined global market, encompassing both managed services and cloud-based as-a-service offerings, rose by 4% year over year to $24.7 billion.
This marks the highest level since Q2 2022 and represents the first year-over-year growth since Q4 2022, although it’s the third consecutive quarter of sequential growth.
ISG President and Chief AI Officer Steve Hall commented, “The market overall appears to be on an upswing, in line with our observations last quarter”
“The as-a-service market drove the growth in Q1, led by a rebound in infrastructure-as-a-service, as enterprises increased cloud spending and GenAI began to increase cloud usage.”
Q1 Performance Highlights
- The as-a-service (XaaS) segment saw a 7% increase from the previous year, reaching $14.6 billion. This growth was spearheaded by the infrastructure-as-a-service (IaaS) sector, which surpassed the $10 billion quarterly ACV mark for the first time since Q4 2022, standing at $10.7 billion—an 11% increase year over year.
- Software-as-a-service (SaaS) experienced a slight decline of 2% compared to the previous year, totaling $4.0 billion. However, Human Capital Management within SaaS showed a 3% year-over-year increase, outperforming the overall segment.
- The managed services segment generated an ACV of $10.0 billion, marking the sixth consecutive quarter at or above this level, despite a 1.4% decrease from a strong prior-year quarter.
- Within managed services, IT outsourcing (ITO) declined 2% compared to the prior year to $6.8 billion—its lowest level in nearly two years.
- Business process outsourcing (BPO), meanwhile, rose 1% to $3.2 billion compared with last year.
Outsourcing sees potential boost
ISG forecasts a 3% growth for managed services for 2024, adjusting down from its January forecast while maintaining a 15% revenue growth prediction for XaaS.
Despite anticipated economic slowdowns and challenges, outsourcing is expected to gain traction as companies strive for cost management and service quality.
“In this environment, outsourcing could see a boost as companies seek to balance cost management and service quality. Generative AI, meanwhile, is poised to be a growth catalyst, with large hyperscalers expected to manage increasing workloads,” Hall added.
ISG is a global technology research and advisory firm with more than 700 clients around the world. It recently secured the #61 spot in the OA500 2024, an objective index of the world’s top 500 outsourcing companies.
