STAMFORD, Conn.--(BUSINESS WIRE)--Demand for IT and business services in the Americas was down in the fourth quarter, as economic and geopolitical concerns continued to weigh on the market, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
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 both managed services and cloud-based as-a-service (XaaS)—came in at $11.8 billion, down 5 percent from a year ago, and off 4 percent sequentially from the third quarter. It was the fourth time in the last six quarters the region’s growth fell into negative territory.
“Economic and geopolitical concerns continued to impact the market, as enterprises delayed the start of new projects and stretched out spending over longer time periods,” said Todd Lavieri, vice chairman and president of ISG Americas and Asia Pacific. “Enterprises are still focused on optimizing their existing investments in the cloud and other tech spending.”
Lavieri said ISG expects the market for IT and business services to improve in 2024. “Conditions are right for a rebound. Inflation is cooling and central banks are discussing interest rate cuts. Deferred investments from 2023 have put pressure on enterprises to deliver in 2024. That should create a more positive environment for enterprise spending and capital deployment this year even as companies continue to optimize their total spending.”
Lavieri also noted the rise of artificial intelligence also will have a positive impact on technology spending in the coming years. “As AI technology matures and new use cases are identified, it will have a massive impact on the IT and business services and software industries.”
Q4 Results by Segment
Fourth-quarter ACV in the managed services segment was $5.2 billion, up 5 percent versus the prior year, but down 13 percent sequentially against a record third quarter. A total of 348 contracts were awarded in the fourth quarter, down 2 percent from the prior year. Activity was driven by contract restructurings, with ACV up 72 percent, to $2.5 billion, the highest quarterly level ever in the Americas. The ACV of new scope awards, meanwhile, slid 22 percent versus the prior year.
Within managed services, IT Outsourcing (ITO) ACV rose 23 percent, to $4.0 billion, driven by strong demand for applications and data center services, while business processing outsourcing (BPO) ACV fell 31 percent, to $1.2 billion.
ACV for XaaS was down 12 percent, to $6.5 billion, the fourth straight quarter of declining year-over-year results, although ACV was 4 percent higher than the previous quarter. ACV for infrastructure-as-a-service (IaaS) was down 18 percent versus the prior year, to $4.0 billion, while software-as-a-service (SaaS) crept up 1 percent, to $2.5 billion. Both IaaS and SaaS saw sequential quarterly gains of 4 percent and 3 percent, respectively.
Full-Year Results
For the full year, the Americas combined market generated $47.5 billion of ACV, down 6 percent over the prior year—the first time ever the combined market declined in a full year.
Managed services ACV rose 6.5 percent, to $21.3 billion, the highest level of full-year ACV ever in this region. A record 1,455 contracts were awarded, up 2 percent from the prior year, including 18 mega deals (contracts with ACV of $100 million or more), the largest number of such contracts since 2006. The ACV of the mega deals, at $2.8 billion, was 58.5 percent higher than the prior year and added an incremental $1 billion of ACV to the market.
Contract restructurings were up 22 percent, to $8.5 billion of ACV, with a record 546 contracts awarded. New-scope ACV came in at $12.7 billion, down 2 percent for the year.
Within managed services, ITO was up 21 percent, to $15.6 billion, driven by spending on applications services, while BPO slumped 20 percent, to $5.7 billion. Record-high spending in the energy, healthcare/pharma and telco/media sectors offset declines in the other large verticals, such as financial services and manufacturing.
ACV for XaaS declined 14.5 percent, to $26.2 billion, the first full-year down market ever in the Americas. IaaS was down 20 percent, to $16.5 billion, and SaaS was down 4 percent, to $9.7 billion. XaaS now represents 55 percent of combined market ACV, down from 61 percent a year ago.
2024 Global Forecast
ISG is forecasting 4.25 percent growth for managed services and 15 percent revenue growth for XaaS in 2024.
“We expect spending for application modernization and business transformation projects led by GenAI to continue at high levels in 2024. Public cloud spending should accelerate as optimizations phase out. We also expect small discretionary deals to recover, as well as Financial Services industry spending to rebound,” Lavieri said.
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 85 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.
The 4Q23 Global ISG Index results were presented during a webcast on January 18. To view a replay of the webcast and download presentation slides, visit this webpage.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 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 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 1,600 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.
