GRC Viewpoint

AI-Driven Cloud Demand Boosts Global IT, Business Services Market in Q4: ISG

Managed services bookings in 2024 faced a slower growth trajectory compared to prior years, primarily due to constrained discretionary spending in banking and manufacturing, which represent almost half of the market’s contract value. However, the broader outsourcing market showed resilience, with data from the ISG Index™ revealing a record-setting $28.2 billion in fourth-quarter annual contract value (ACV) across managed and cloud-based services—an impressive 20% year-over-year increase.

Cloud services drove much of this growth, with a remarkable 33% annual increase in ACV, totaling $17.7 billion. Infrastructure-as-a-Service (IaaS) led the charge with a 42% jump to $13.4 billion, while Software-as-a-Service (SaaS) contributed a 12% rise, reaching $4.3 billion. Enterprises continued to accelerate cloud adoption, leveraging it to bolster AI initiatives. This momentum benefitted major cloud providers and their ecosystems, with AI-related revenues now accounting for 6% of providers’ income—a figure that’s steadily climbing.

In contrast, managed services grew modestly, recording a 2.6% increase in fourth-quarter ACV to $10.5 billion. Sequential demand slowed slightly, down 3% from the prior quarter. IT outsourcing (ITO) remained flat at $7.9 billion, while business process outsourcing (BPO) grew by 9% to $2.6 billion. Notably, the quarter saw 715 managed services contracts awarded—a 6% increase year over year—including 10 mega-deals valued at $100 million or more, marking three consecutive quarters of such activity.

For 2024, the combined global market reached a record $104 billion in ACV, up 11% from the previous year. Cloud-based services contributed $62.4 billion, a 19% increase, with IaaS up 25% to $46.6 billion and SaaS rising 4.6% to $15.8 billion. Managed services saw a modest 2% growth, reaching $41.7 billion, with ITO steady at $30.6 billion and BPO up 6% to $11 billion. New-scope awards hit record highs, reflecting greater enterprise focus on transformation despite budget pressures.

Looking ahead, ISG projects a 4.5% revenue growth for managed services and 18% for cloud-based services in 2025. Factors like AI’s growing influence, anticipated interest rate adjustments, and loosening discretionary spending could fuel market expansion. Additionally, sectors like BFSI may see stronger recovery as enterprises address technical debt and adopt generative AI technologies.

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