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IT and business services spending bounces to new heights

Second-quarter results reveal IT and business services spending at a new high, in stark contrast to the Covid-19-hit quarter a year ago

Global spending on cloud-based IT services and traditional IT outsourcing have both hit record levels in the latest quarter.

According to figures from Information Services Group (ISG), which includes all contracts worth $5m or more, global organisations spent $19.1bn on IT and business services in the second quarter of this year – a record high. Spending was 32% up on the same quarter last year, when contract activity was low because of the Covid-19 pandemic. The total value of contracts was 11% higher than the previous quarter.

Cloud-based services accounted for $11.2bn of the total after a 38% increase in the value of contracts signed, compared with the second quarter of 2020, and were 13% higher than the previous quarter.

Traditional IT outsourcing services and business process outsourcing (BPO) contracts combined were worth $7.9bn in the quarter, with traditional outsourcing accounting for $6.1bn of this. This segment included a record 525 contracts and four mega-deals, worth over $100m each, during the three-month period.

Steve Hall, partner and president of ISG, said the market is being driven by what he described as “two mega-trends”, the move to the cloud and digital transformation. He said Covid-19 had accelerated these by three to five years and warned businesses not to delay investments in them.

“Business has clearly shifted, and if you’re lagging in your own strategy change, you may not be competitive much longer,” he warned.

Infrastructure-as-a-service (IaaS) contracts were worth $8.2bn in the quarter, another record, up 41% on the same quarter a year earlier and 15% on the previous quarter. Software-as-a-service (SaaS) also hit new heights with $3bn worth of contracts signed, 31% up on last year and 8% more than the first quarter.

Total contract value in Europe was $6.3bn, up 31% on the same quarter last year and 4% on the previous quarter. As-a-service contracts were worth 41% more than last year at $2.3bn, with a 47% increase in IaaS investments, which reached $2.2bn, and a 27% boost in SaaS spending, which totalled $722m.

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In contrast, traditional IT and business process outsourcing spending fell by 4% in the the second quarter compared to the first. But total value was 23% higher than the soft period a year earlier.

The total value of contracts in the Americas region during the second quarter was $9.5bn, 25% higher than last year and 10% more than the previous quarter.

Asia Pacific contracts increased in total value by 59% compared with last year, with $3.4bn spent.

ISG expects cloud based as a service contract value to increase by 21% this year, with traditional IT services seeing an 8% rise in contract value.

ISG’s Hall said demand was robust and showed no signs of slowing down. “Right now, cloud is central to virtually every one of our client conversations,” he added. “The debate is whether these are major structural shifts or Covid-19-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, datacentre, compute, cloud provisioning and other business-transforming technologies.”

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