Global demand for technology and business services continues to rise, reaching an all-time high in the first quarter, with a growing pipeline of deals signaling continued expansion in 2021 as the economy begins to emerge from the pandemic, the latest state-of-the industry report from Information Services Group finds.
Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show first-quarter ACV for the combined global market (both as-a-service and managed services) reached a record $17.1 billion, up 11 percent over last year and up 4 percent from the fourth quarter. It was the third consecutive quarter of global growth following the pandemic-related drop in the second quarter of 2020.
“The demand environment has improved steadily over the past three quarters,” said Steve Hall, partner and president, ISG. “Deals are filling the pipeline as economies loosen pandemic restrictions, and enterprises continue to make digital transformation a business imperative. Providers are focused on meeting that need by concentrating on cloud modernization, cost optimization, and helping customers create resilient and agile operations and personalized omnichannel experiences.”
The cloud-based as-a-service market rose 15 percent, to a record $9.9 billion, in the first quarter, but growth decelerated from the fourth quarter, when it was up 26 percent year over year. Managed services ACV, meanwhile, reached $7.2 billion in the first quarter, up 7 percent year over year, outperforming expectations due to a second consecutive quarter of strong growth in Europe.
Within the as-a-service segment, infrastructure-as-a-service (IaaS) generated a record $7.2 billion of ACV, up 18 percent versus the prior year, but slowing from its 36 percent growth rate in the fourth quarter. Software-as-a-service (SaaS) produced a record $2.7 billion of ACV, up 7 percent year over year and 10 percent quarter over quarter.
Within managed services, IT outsourcing (ITO) ACV was $5.8 billion, up 1 percent from last year and down slightly from the previous quarter, as strength in application development and maintenance (ADM) services—up 7 percent versus the prior year on a record number of deals and up 29 percent versus the prior quarter—was largely offset by a 6 percent year-over-year decline in infrastructure services. ITO contract volume, overall, reached a record 376 deals.
ACV for business process outsourcing (BPO), meanwhile, leaped 43 percent from the prior year, to $1.4 billion, but was down slightly from the prior quarter. The BPO market was driven by strength in industry-specific services and engineering and R&D services, even as two of the largest BPO segments, facilities management and contact center services, produced mixed results.
