Demand for IT and business services in the US rose slightly in the fourth quarter, as growth moderated on economic concerns, ISG Index™ finds

The combined market grew by 1%, with growth in IaaS and BPO offset by weaknesses in other segments

ISG predicts 17% growth for XaaS and 5% growth for managed services globally in 2023.

STAMFORD, Connecticut, January 19, 2023—(BUSINESS WIRE)–Demand for IT and business services in the U.S. rose slightly in the fourth quarter, but remained weighed down by economic concerns, according to the latest State of the Industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, reveals.

The Americas ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows fourth quarter ACV for the combined market—including services as a service (XaaS) and managed services—managed to 12.3 billion dollars, which is 1 percent more than a year ago, but sequentially 1 percent less than the third quarter. The latest quarter marks the third straight quarter in which the region has seen consecutive declines in ACV—the first time this has happened, according to the ISG Index—driven by a sequential slowdown in infrastructure-as-a-service (IaaS) spending and essentially no growth in managed services.

“Demand in the Americas is slowing in response to current economic concerns, as US-based businesses scrutinize spending in the face of a potential economic slowdown,” said Todd Lavieri, ISG’s vice president and president of the Americas and Asia Pacific. “Inflation and higher interest rates are the main culprits as companies postpone spending on non-critical projects.

“In this regard, we are seeing strong interest in cost optimization to fund the ongoing digital transformation, which remains a business imperative as companies prepare for the next wave of digital innovation on the other side of this crisis,” continued Lavieri. “Clients are also facing rapidly rising cloud costs, looking for ways to avoid, optimize or reduce those expenses.”

Demand for cloud-based XaaS solutions rose 1.4 percent to $7.8 billion, but fell 2 percent quarter-on-quarter, the second straight quarter the market has slowed, most recently during the pandemic 2020 Compared to last year, fourth-quarter ACV for IaaS grew 4 percent to $5.3 billion, while software-as-a-service (SaaS) spending fell 3 percent to $2.5 billion.

Managed services spending in the fourth quarter was $4.5 billion in ACV, up just 0.4 percent from last year’s strong fourth quarter. Deal volume reached 325 deals in the quarter, up 7 percent year-over-year, the eighth consecutive quarter with deal volume above 300 deals. IT Outsourcing (ITO) ACV fell 9 percent to $3.0 billion, while business processing outsourcing (BPO) ACV jumped 25 percent to $1.6 billion, driven by the strength of industry-specific services and facilities management.

Full year results

For the full year, the combined Americas market generated $50.7 billion in ACV, up 14.5 percent year-over-year. ACV managed services rose 5 percent to $18.7 billion on a record 1,341 awards, up 7.5 percent. Within managed services, ITO fell 7 percent to $12.0 billion, while BPO grew 37 percent to $6.8 billion.

ACV in the XaaS space climbed 21 percent to $31.9 billion, with IaaS up 29 percent to $22.1 billion and SaaS up 7 percent to $9.9 billion. XaaS now represents 63 percent of combined market ACV, up from 60 percent a year ago, reflecting the continued shift to cloud-based services.

Global forecast for 2023

ISG sees several potential positive developments for the market heading into 2023, including the end of interest rate hikes, easing inflationary pressures, the reopening of China, the start of normalization of supply chains and the US dollar falling from recent highs.

ISG analysts say XaaS providers are still dealing with “technical redundancy” and are compensating for reduced demand by reducing the size of their workforce after a period of significant hiring over the past few years. With that said, ISG predicts 17 percent annual ACV growth for the XaaS market in 2023, lower than previous years.

For managed services, the move towards cost optimization “should provide headwinds for this market”, ISG analysts said. ISG predicts ACV growth of 5 percent for managed services in 2023.

About the ISG Index™

The ISG Index™ is recognized as the authoritative source of market data on the global technology and business services industry. For 81 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise customers, software and service providers, law firms, universities and the media. For more information on the ISG index, visit this website.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and consulting firm. As a trusted business partner to more than 800 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 accelerate growth. The company specializes in digital transformation services, including automation, cloud and data analytics; resource consulting; managed risk management and services; Network operator services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006 and headquartered in Stamford, Connecticut, ISG employs more than 1,300 digitally ready professionals working in more than 20 countries—a global team known for its innovative thinking, market impact, deep industry and technology expertise, and world-class research and analytical capabilities based on the most comprehensive market data in the industry. For more information, visit www.isg-one.com.

See the original version on businesswire.com: https://www.businesswire.com/news/home/20230119005528/en/

Contacts

Media contacts:

Will Thoretz, ISG
+1 203 517 3119
[email protected]

Julianna Sheridan, Matter Communications for ISG
+1 978-518-4520
[email protected]

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