Global IT outsourcing sees record spending and no sign of slowing

Cloud services are being taken up by enterprises rapidly as they accelerate digital transformations

Enterprises spent a record $21.8bn on IT and IT-enabled business services in the third quarter of 2021, as economies reopened and businesses accelerate digital transformations.

Cloud-based services are fuelling growth, with no sign of demand slowing.

According to the latest global figures from ISG, cloud-as-a-service contracts were worth a total of $13.4bn during the quarter – 55% higher than in the same period last year.

Meanwhile, ISG reported a 40% increase in the total value of more traditional IT outsourcing, known as managed services, at $8.4bn.

ISG measures contracts with a value of $5m or more.

Steve Hall, president at ISG, said global demand for IT outsourcing services is as robust as ISG has ever seen since it began reporting the market in 2014.

“This is not just pent-up demand coming out of the pandemic, but a real structural shift for the market as enterprise customers accelerate their digital transformation strategies, modernise their legacy environments and move to the cloud,” he said. “We see this trend continuing for the foreseeable future, even against some economic headwinds. There is no let-up in sight.”

Almost $60bn has been spend on IT services so far this year, 26% up on the same nine-month period last year, according to ISG’s research.

In Europe, the Middle East and Africa (EMEA), $6.5bn was spent overall, a 36% increase on the equivalent period last year.

Cloud-based as-a-service contracts saw spending rise by 59%, reaching $3.3bn. Infrastructure-as-a-service (IaaS) contracts were worth $2.4bn and software-as-a-service (SaaS) deals totalled $930m.

ISG expects cloud-based IaaS and SaaS contracts to be worth 25% more in 2021 overall, compared with 2020, and expects firm managed services contract values to increase by just over 10% during the same period.

Hall added: “Our outlook for the technology and business services market remains bullish, with the volume of managed services deals in the pipeline indicating strong buying intentions among enterprises seeking digital transformation partners. The market is no longer dependent on larger deals and the smaller deals, we believe, will eventually grow into larger engagements as transformation efforts continue to pick up steam.”

He said cloud-based services are still relatively young and there is a risk that price rises might hamper growth.

“We believe the as-a-service market is in the early phase of its maturity cycle,” said Hall. “One near-term headwind is inflationary pressures. If providers can successfully navigate potential price increases with their client base or alter the pricing model to another construct, such as outcomes-based pricing, the multi-year secular growth drivers should remain quite healthy.”

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