Global combined ACV, at record $19.1 billion, hits new high for third straight quarter

Cloud-based as-a-service spend at record $11.2 billion, up 38%

Managed services also reaches new quarterly high of $7.9 billion, up 24%

ISG raises its 2021 forecasts for both as-a-service and managed services

With COVID-19 accelerating digital transformation and the move to the cloud, global demand for technology and business services has reached a new record for the third straight quarter, the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, finds.

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 as-a-service and managed services) reached a record $19.1 billion, up 32 percent versus a soft quarter last year, when demand was sharply lower amid the onset of the pandemic. Global ACV this quarter was up 11 percent versus Q1, which, like the quarter before it, established a record high for the global IT and business services market.

“The global market today is driven by two mega-trends: the move to the cloud and digital transformation. COVID accelerated those moves by three to five years,” said Steve Hall, partner and president of ISG. “Business has clearly shifted, and if you’re lagging in your own strategy change, you may not be competitive much longer.”

The cloud-based as-a-service market reached a record $11.2 billion in the second quarter, up 38 percent off a soft compare, but with sequential growth of 13 percent. Infrastructure-as-a-service (IaaS) climbed to a record $8.2 billion, up 41 percent year-over-year and 15 percent quarter-over quarter. Software-as-a-service, at $3.0 billion, also establish a new quarterly high, up 31 percent versus last year and up 8 percent versus the prior quarter.

Managed services topped out at $7.9 billion, a new record, up 24 percent from last year and 8 percent from last quarter, fueled by a record 525 contracts signed during the second quarter, including four mega-deals exceeding $100 million of ACV. IT outsourcing (ITO) reached a record $6.1 billion, up 17 percent from last year and 5 percent over Q1, while business process outsourcing (BPO), at $1.8 billion, soared 52 percent over last year, and 23 percent sequentially.

For the first half of 2021, the combined global market generated a record $36.3 billion of ACV, up 20 percent. As-a-service, at a record $21.0 billion, was up 25 percent, and managed services, at a record $15.3 billion, was up 15 percent. Within as-a-service, IaaS reached a record $15.3 billion, up 28.5 percent, and SaaS hit a record $5.7 billion, up 15 percent. On the managed services side, ITO was at a record $12.0 billion, up 8 percent, and BPO reached $3.3 billion, up 48 percent.

Americas

The Americas region saw its combined ACV grow by double digits for the second straight quarter. Second-quarter combined ACV reached a record $9.5 billion, up 25 percent versus last year and 10 percent over the prior quarter. As-a-service ACV was a record $5.9 billion, up 33 percent year-over-year, with IaaS ACV of $3.9 billion, up 33 percent, and SaaS ACV of $1.9 billion, up 31 percent, both records. Managed services ACV, on record deal activity, advanced 14 percent, to a record $3.6 billion, with $2.6 billion of ITO ACV, up 5 percent, and $1.1 billion of BPO ACV, up 44 percent.

Europe, Middle East and Africa (EMEA)

EMEA’s combined market reached $6.3 billion, up 31 percent from the prior year and 4 percent from the first quarter. As-a-service climbed 41 percent, to a record $2.3 billion, fueled by a 47 percent surge in IaaS, to a record $2.2 billion, and 27 percent growth in SaaS, to a record $722 million. Managed services, at $3.4 billion, was down 4 percent quarter over quarter, its second straight quarterly decline from a record Q4, although it was up 23 percent over a soft Q2 a year ago. Deal activity for the quarter was at a record high. ITO generated $2.8 billion of ACV, up 18 percent, and BPO produced $611 million of ACV, up 54 percent.

Asia Pacific

Asia Pacific surpassed combined-market ACV of $3 billion for the first time, climbing 59 percent over the prior year and 35 percent quarter-over-quarter, to a record $3.4 billion. ACV for as-a-service came in at a record $2.4 billion, up 50 percent over last year, on 52 percent growth in IaaS, to a record $2.1 billion, and 38 percent growth in SaaS, to a record $312 million. Managed services, meanwhile, turned in its best quarter in two years, with ACV soaring 87 percent, to a record $929 million. ITO reached a record $800.1 million, up 80 percent, and BPO rocketed 148 percent, to $129 million. Contract activity was at its highest level in the region in three years.

2021 Forecast

ISG is forecasting the market for cloud-based services (IaaS and SaaS) will grow 21 percent globally in 2021, up slightly from its 18 percent growth forecast last quarter. The firm also is raising its forecast for managed services growth to 9 percent, up from its prior forecast of 5 percent.

Commenting on the forecast, Hall said: “The demand environment and associated technology spend is very robust and shows no signs of slowing down. Right now, cloud is central to virtually every one of our client conversations. The debate is whether these are major structural shifts or COVID-related shifts. We believe the surge goes beyond pent-up demand and could signal the early stages of a longer-term cycle, with continuing strong investment in 5G, data center, compute, cloud provisioning and other business-transforming technologies.”

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 75 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 2Q21 Global 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.

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 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 1,300 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.

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