The global sourcing market in the fourth quarter fell back from its
record-setting third-quarter performance, despite continued strong
demand for cloud-based services, according to the latest
state-of-the-industry report from Information Services Group (ISG)
(Nasdaq: III), a leading global technology research and advisory
firm.
Data from the ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of $5 million or more,
show fourth-quarter ACV for the combined global market (including
both as-a-service and managed services) rose 6.7 percent over the
prior year, to $13.9 billion, but was down sequentially from the
record $14.2 billion of ACV in the third quarter.
The fourth-quarter result was paced by 14.2 percent growth in
the as-a-service market, to $7.0 billion, as enterprise demand
remains strong for cloud-based services
(Infrastructure-as-a-Service and Software-as-a-Service). Although
down 2 percent from the prior quarter, it was only the second time
ever as-a-service reached $7.0 billion of ACV in a quarter. Managed
services, meanwhile, was relatively flat for the quarter, with ACV
of $6.9 billion, up 0.1 percent.
“Digital is the default position for enterprises in today’s
technology-driven world,” said Steve Hall, president of ISG. “We
don’t see macroeconomic headwinds slowing the pace of digital
change in 2020; on the contrary, we see the cost-savings gained
through digitization being reinvested in new digital growth
initiatives, as large enterprises are forced to reinvent themselves
to compete with upstart disruptors. It’s clear the digital
tailwinds are stronger than the macroeconomic headwinds. Digital
will continue to propel the overall market forward.”
2020 Forecast
ISG is forecasting the market for cloud-based services will grow
23.5 percent globally in 2020, and the market for managed services
will grow 3.2 percent.
“The hyperscaler market will continue to be competitive across
the globe,” said Hall. “We see the rapid rise of China-based
Infrastructure-a-Service providers and the impressive new
capabilities implemented within Google Cloud Platform increasing
competition and offering more choice for enterprises. The battle
for European supremacy will continue between AWS and Microsoft, and
many Software-as-a-Service providers will need to defy the law of
large numbers to continue their high-flying ways in 2020.”
Traditional managed services providers, meanwhile, will have to
pivot to more digitally led solutions in 2020, Hall said. “As the
largest service providers rebalance their portfolios, it will be
interesting to see if they continue to emphasize digital solutions
or revert to pursuing legacy deal flow.”
Full-Year Results
For 2019, the combined global market reached a record $55.7
billion, up 10.3 percent over the prior year. Full-year results
were driven by a 20.6 percent increase in as-a-service ACV, to a
record $28.0 billion. Managed services, at $27.7 billion, also
turned in a record year, albeit with growth of only 1.6 percent.
The number of managed services contracts signed in 2019—1,771—was
down 7 percent versus the prior year.
Globally, both Infrastructure-as-a-Service (IaaS), at $20.4
billion, up 23 percent, and Software-as-a-Service (SaaS), at $7.5
billion, up 15 percent, reached record highs in 2019. The IT
outsourcing (ITO) market, meanwhile, declined 1 percent, to $20.9
billion, even as the business process outsourcing (BPO) market rose
9 percent, to $6.8 billion, its highest ACV in three years.
Americas
The combined market in the Americas fell 3 percent in the fourth
quarter, to $6.7 billion, on softer managed services results, down
18 percent, to $3.0 billion. Although falling back from its record
high in the third quarter, as-a-service ACV was up 14 percent in
the fourth quarter, to $3.7 billion, propelled by record SaaS ACV
of $1.3 billion, up 18 percent.
For the full year, the combined market generated record ACV of
$27.9 billion, up 8 percent, fueled by 23 percent growth in
as-a-service, to a record $14.9 billion. As-a-service accounted for
more than 50 percent of the Americas market for the first time ever
in a full year. Managed services, at $13.0 billion, was down 5
percent for the year.
Europe, Middle East and Africa (EMEA)
EMEA delivered a record-setting fourth quarter, with combined
market ACV of $5.2 billion, up 25 percent versus the prior year and
21 percent against the previous quarter. Powered by three mega
deals valued at over $100 million per year, managed services rose
39 percent, to $3.5 billion, its best quarter in almost three
years. Both the UK and DACH markets had $1 billion quarters in
managed services. The as-a-service segment, meanwhile, generated
$1.7 billion of ACV, up 5 percent year-on-year, but down 6 percent
against a record-setting third quarter.
Full-year combined ACV was a record $19.0 billion, up 10
percent. Both the managed services ($11.9 billion, up 8 percent)
and as-a-service (a record $7.1 billion, up 13 percent) segments
contributed to the region’s best-ever result. For the year, managed
services in the UK rose 15 percent, while DACH slumped 11 percent,
despite a strong fourth quarter.
Asia Pacific
The Asia Pacific region, buffeted by uncertainty over China
trade and civil unrest in Hong Kong, grew 2 percent in the fourth
quarter, to $2.05 billion of combined market ACV, a result that was
4 percent lower than the third quarter. Managed services slumped 41
percent, to $413 million, as most countries showed declines, with
the exception of China, which saw a brief surge. The as-a-service
segment, however, rose 26 percent, to a record $1.64 billion, and
accounted for a record 79 percent of the combined market for the
quarter.
For the year, Asia Pacific’s combined market ACV reached a
record $8.8 billion, up 20 percent, and surpassed the $8-billion
mark for the first time. Managed services grew 10 percent, to $2.8
billion, its best result since 2014. As-a-service ACV rose 25
percent, to $6.04 billion—the first time the region surpassed the
$6-billion mark—fueled especially by 25 percent growth in IaaS,
which exceeded $5 billion in ACV for the first time.
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 69 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. In 2016, the ISG Index was expanded to include coverage
of the fast-growing as-a-service market, measuring the significant
impact cloud-based services are having on digital business
transformation. ISG also provides ongoing analysis of automation
and other digital technologies in its quarterly ISG Index
presentations.
The 4Q 2019 ISG Index was presented during a conference call and
webcast today. To listen to an audio replay of the call and view
presentation slides, visit this webpage.
For a snapshot of the 4Q 2019 ISG Index results, view this
infographic.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading
global technology research and advisory firm. A trusted business
partner to more than 700 clients, including more than 70 of the top
100 enterprises in the world, 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 1,300
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.
# # #
Will Thoretz
Information Services Group, Inc.
+1 203 517 3119
Will.Thoretz@isg-one.com
Jim Baptiste
Matter Communications for ISG
+1 978 518 4527
jbaptiste@matternow.com
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