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IT outsourcing falls steeply in second quarter but IT as a service sees strong growth

Sales of IT as a service growth in Europe helped offset a huge fall in the total value of traditional IT and business process outsourcing contracts

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The total value of traditional IT outsourcing contracts in Europe fell in the second three months of 2016, but IT as a service contracts saw significant growth.

The entire contract value in the Europe, Middle East and Africa region, taking into account deals worth €4m and more, was €2.2bn – 18% less than the same period a year ago.

At €1.2bn traditional IT and business processing outsourcing was down 28% in the second quarter of 2016, compared to the same period in 2016, according to the latest figures from ISG. In contrast, IT as a service total contract value in the region jumped 38% to €600m.

“The region’s traditional sourcing markets pulled back in the second quarter and came in at lower levels than projected, due to a lack of large deals and restructurings, alongside some challenging macro-economic factors inside the European Union,” said John Keppel, president at ISG.

“These factors, and notably the result of the UK referendum on EU membership, will continue to have an impact, although it is too soon to say exactly what this will look like.”

Keppel said ISG expects the total value of traditional IT outsourcing contracts in 2016 will be slightly lower than 2015. “At the same time, as-a-service growth should continue along on a steep, upward trajectory as corporations in the region increasingly harness the flexibility and speed on offer.”

As-a-service all-commodity volume growth is being driven by infrastructure-as-a-service (IaaS) activity, with total contract value rising 63%.

Software as a service (SaaS) increased by 9% in the same period. The sale of as-a-service contracts could be part of the reason that the value of traditional IT outsourcing contracts is falling.

Read more about IT outsourcing adoption

SaaS is well established with companies such as Salesforce.com, Microsoft and Oracle all offering their software through the cloud with subscription models.

The IaaS market is seeing significant growth with the likes of Amazon Web Services and Microsoft, through Azure, winning contracts with customers of different shapes and sizes.

The ability to pay for computing resources when you need them, without up-front capital costs, is driving the adoption of IaaS. ... ... ... ... ... ... ... ... ...

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I can see the downward trend in outsourcing. It can be expensive and in order to keep up with technology it's an open ended expense.
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