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In a positive news for the IT industry, the global demand for managed services - under this a service provider delivers unlimited IT support and monitoring of network for one flat fee - hit a new peak in the June quarter, even as lower spending on Cloud services pulled down the overall IT and business services market, according to the latest report from Information Services Group (ISG), a global technology research and advisory firm.
Managed services hit a new quarterly high of $10 billion, up six per cent from the prior year. This is the tenth time in the last 11 quarters this segment has grown year-over-year.
However, the overall market was down as slowing demand for cloud-based services accelerated. ACV for this segment declined 18 per cent to $12.6 billion, after reaching a peak of more than $16 billion in the first quarter of 2022, the report said.
Data from the ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show second-quarter ACV for the combined global market – both cloud-based as-a-service (XaaS) and managed services – was $22.7 billion, down nine per cent from the prior year – the third straight quarter the market has seen a year-over-year decline.
“Managed services continue to be resilient in the face of economic uncertainty,” said Steve Hall, president of ISG. “We are seeing continued strong demand in this segment as enterprises use managed services as a lever for cost optimisation. Contract renewals and extensions remain robust, and mega-deal ACV also came in very strong for the quarter.”
During the second quarter, ten mega-deals (managed services contracts with annual value of more than $100 million) were signed. The 10 contracts were worth a combined $1.7 billion of ACV, up 35 per cent from the combined value of the 10 megadeals signed in the second quarter last year. In all, 703 managed services contracts were inked in the second quarter, up six per cent from the prior year.
Within managed services, global ACV for IT outsourcing (ITO) in the quarter rose 19 per cent, to a record $7.7 billion, fueled by growth in application development and maintenance (ADM) services, even as ACV for business process outsourcing (BPO) slid 24 percent, to $2.3 billion, due to a significant falloff in industry-specific services from the prior year.
Within XaaS, ACV for infrastructure as a service (IaaS) was down 22 per cent, to $8.7 billion, as limits on discretionary spending slowed cloud migrations, while ACV for software as a service (SaaS) dropped 7 per cent, to $3.9 billion, despite the top 10 SaaS providers outperforming the broader SaaS market for the second quarter in a row.
2023 Forecast
ISG lowered its forecast for XaaS revenue growth in 2023 to 11.5 per cent, down 350 basis points from its March forecast, and maintained its growth forecast for managed services at five per cent.
“In determining our forecast, we considered macro uncertainties that have delayed decision-making and tightened discretionary spending, thus slowing movement in the pipeline,” said Hall. “Digital transformation is not discretionary spending, but enterprises are more cautious about investments.
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