ISG
Europe’s demand for IT and business services in the first quarter rose for the first time in a year, powered by growth from the banking, financial services and insurance (BFSI) sector, 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 EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market (both managed services and cloud-based as-a-service) rose 2.5 percent, to US $7.5 billion, in the first quarter. The market’s year-on-year growth in Q1 broke a string of four consecutive quarters the region was down versus the prior year.
“The European market is on the rebound,” said Steve Hall, president, ISG EMEA. “Both managed services and cloud services were higher in Q1, and managed services was up nearly 5 percent year on year for BFSI, the region’s largest business sector. Business process outsourcing was strong, and we also saw a surge in bundled ADM and infrastructure activity across the region.”
Q1 Results by Segment
Managed services ACV in the first quarter rose 3 percent, to US $3.9 billion. There were 277 managed services contracts signed in the quarter, down 8 percent from the prior year, but up 9.5 percent sequentially from the fourth quarter. Among those contracts were two mega deals (ACV of US $100 million or more). The volume of smaller deals (under US $30 million) was down 10 percent year on year as economic uncertainty weighed on discretionary spending. With companies still focusing on cost reduction, the ACV of restructured contracts climbed 12 percent.
Within managed services, IT outsourcing (ITO) was down 7 percent, to US $2.8 billion, driven by declines in data center and standalone application development and maintenance (ADM) services. Meanwhile, the ACV of bundled infrastructure and ADM services was up more than 80 percent.
Business process outsourcing (BPO) soared 40 percent, to US $1.1 billion, fueled by rising demand for industry-specific services.
By industry, managed services ACV was sharply higher (up 80 percent) in the travel, transportation and leisure sector. BFSI, Europe’s largest industry for outsourcing, saw its ACV climb nearly 5 percent, offsetting weakness in the next two largest sectors – manufacturing (down 5 percent) and telecommunications (down 10 percent).
ACV in the as-a-service (XaaS) segment rose 2 percent year on year, and 9 percent from the prior quarter, to US $3.6 billion – its best quarterly result since the fourth quarter of 2022. This segment’s first-quarter growth ended a streak of four consecutive quarters of year-on-year declines.
Within this segment, infrastructure-as-a-service (IaaS) advanced 7 percent, to US $2.5 billion, fueled in part by growing interest in the data services required to feed generative AI models, while software-as-a-service (SaaS) declined 8 percent, to US $1.0 billion.
Geographic Performance
The region’s largest market, the U.K., generated US $1.2 billion of managed services ACV, its fifth consecutive quarter with ACV of more than US $1 billion, although it was down 4 percent versus the prior year. DACH (Germany, Austria and Switzerland), the region’s second-largest market, saw its ACV decline 6 percent, to US $647 million, while France slipped out of its usual number-three spot as its ACV fell 27 percent, to US $471 million. The Nordics eclipsed France to become Europe’s third-largest ACV market in the first quarter, with ACV of US $600 million, up 45 percent year on year.
2024 Global Forecast
ISG is forecasting 3 percent growth for managed services, down 125 basis points from its January forecast, and maintaining its forecast of 15 percent revenue growth for XaaS in 2024.
“Looking ahead to the rest of the year, economic conditions are forecasted to be less volatile than in 2023, but challenges persist,” Hall said. “The global economy is expected to slow down, impacted by monetary policies to combat inflation, which is expected to decline.
“In this environment, outsourcing could see a boost as companies seek to balance cost management and service quality. GenAI, meanwhile, is poised to be a growth catalyst, with large hyperscalers expected to manage increasing workloads. The data layer, integral for training AI models, presents a prime opportunity for service providers.”
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 86 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.
The 1Q24 Global ISG Index results were presented during a webcast on April 11. To view a replay of the webcast and download presentation slides, 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 AI and 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.
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