Asia Pacific Sees Rising Demand for Managed Services as Cloud Spending Continues to Fall, Q2 ISG Indexâ„¢ Shows

Managed services ACV up 30%, while XaaS spending down 28% in second quarter

SYDNEY–(BUSINESS WIRE)–$III#BusinessProcessOutsourcing–Demand for traditional managed services in Asia Pacific remained strong in the second quarter, even as spending on cloud services continued to slide, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The Asia Pacific ISG Indexâ„¢, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows second-quarter ACV for the combined market (both cloud-based XaaS and managed services) fell 18 percent versus the prior year, to US $4.0 billion, dragged down by a sharp and continuing decline in the XaaS segment.

ACV for XaaS was down 28 percent for the quarter, to US $2.9 billion, the lowest such mark since the third quarter of 2020, and the fourth quarter in a row that the XaaS market has contracted year over year.

Meanwhile, demand for managed services rose significantly, with second-quarter ACV up 30 percent, to US $1.1 billion, from the prior year. A total of 62 contracts were awarded in the quarter, down 19.5 percent year over year, but including two mega deals (contracts with annual value of US $100 million or more), the most in a quarter in four years. Of the deals signed in the quarter, ACV of restructured contracts and new scope awards was up 45 percent and 21 percent, respectively.

“Enterprises in Asia Pacific are increasing their spending on traditional IT and business services outsourcing as a lever for cost optimization in an uncertain economy,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific “The cloud sector, meanwhile, continues to suffer a reversal of fortune. Enterprises that scaled up quickly during the pandemic are now rationalizing their cloud costs and postponing discretionary cloud spending.”

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV was down 30 percent, to US $2.5 billion, while software-as-a-service (SaaS) ACV was down 6 percent, to US $410 million.

In managed services, IT outsourcing (ITO) ACV soared 58 percent, to US $986 million, on the strength of application development and maintenance (ADM), data center and managed network services. Business process outsourcing (BPO), meanwhile, declined 53 percent, to US $100.2 million, with ACV up only in contact center and HR services for the quarter.

From a geographic perspective, demand for managed services was up significantly in India, Australia-New Zealand and China, while declining in Japan and Southeast Asia.

First-Half Results

Asia Pacific’s combined market fell 19 percent versus the prior year, to US $8.4 billion, the first time since 2017 the region had a down first half.

Managed services rose 47 percent, to US $2.0 billion, the highest ACV in a first half since 2014. A total of 119 contracts were awarded, down 4 percent from the prior-year period. ITO ACV rose 64 percent, to US $1.6 billion, while BPO was flat, at US $352 million. Spending on managed services in Australia-New Zealand, the region’s largest geographic market, doubled from the prior year, while India and China also registered significant growth.

Meanwhile, XaaS spending in the first half fell 29 percent, to US $6.4 billion, as IaaS slumped 31 percent, to US $5.6 billion, and SaaS declined 12 percent, to US $794 million.

2023 Global Forecast

ISG lowered its forecast for XaaS revenue growth in 2023 to 11.5 percent, down 350 basis points from its March forecast, and maintained its growth forecast for managed services at 5 percent.

“In determining our forecast, we considered macro uncertainties that have delayed decision-making and tightened discretionary spending, thus slowing movement in the pipeline,” said Bertsch. “We also noted interest rates have risen more in the past year than in the previous 30, which may dampen big infrastructure investments. But the difficult comps will soon be behind us, and excitement is growing around generative AI. That could provide a tailwind for cloud services.”

About the ISG Indexâ„¢

The ISG Indexâ„¢ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 83 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. For more information about the ISG Index, 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 900 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 1,600 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.

Contacts

Press:

Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com

Julianna Sheridan, Matter Communications for ISG

+1 978-518-4520

isg@matternow.com