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Europe’s Spending on IT, Business Services Hits Record in 2021, Amid Signs of Slowing Demand in Q4, ISG Index™ Finds

EMEA’s combined ACV grows at highest annual rate ever, to record US $26.5 billion in 2021

Europe’s technology and business services market reached a record high in 2021, but showed signs of slowing in the fourth quarter, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

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“In addition to a difficult compare, DACH was also impacted by supply chain disruptions and a slowdown in global consumer spending, which led to an extension of existing scope and a pause in larger transformation deals”

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, which includes both as-a-service (XaaS) and managed services, reached a record US $26.5 billion for the year, up 23 percent, the region’s highest annual growth rate ever.

Managed services climbed 11 percent, to US $13.9 billion—its highest level in a decade—including a record US $11.4 billion for IT outsourcing (ITO), up 5 percent, and US $2.6 billion for business process outsourcing (BPO), up 45 percent. XaaS soared 41 percent, to a record US $12.6 billion, on 44 percent growth in infrastructure-as-a-service (IaaS), to a record US $9.2 billion, and 33 percent growth in software-as-a-service (SaaS), to a record US $3.4 billion.

The record performance for the year extended to the fourth quarter, although the closing period showed signs of slowing demand. Combined ACV rose 9 percent, to US $7.1 billion—the first time it has broken through the US $7 billion level in a quarter. EMEA’s fourth-quarter growth rate, however, was its lowest in 2021, and was up only 4 percent versus the third quarter.

“Despite signs of a slowdown last quarter, EMEA appears to be on a solid upward trajectory overall. Combined market ACV has stayed above US $5 billion per quarter since mid-2020, including four consecutive US $6 billion quarters and the latest quarter topping US $7 billion,” said Steve Hall, president of ISG EMEA.

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In the fourth quarter, the XaaS market reached a record US $3.6 billion of ACV, up 55 percent over the prior year. IaaS also grew 55 percent, to a record US $2.6 billion, while SaaS jumped 57 percent, to a record US $952 million.

Meanwhile, the managed services market saw some choppiness in the fourth quarter. At US $3.5 billion, ACV was down 16 percent versus the prior year, but up 2 percent over the third quarter. There were 205 contracts awarded in the quarter, up 10 percent over the prior year. Within the segment, ITO was down 19 percent, to US $3 billion, against the prior year, but up 19 percent versus the third quarter. Meanwhile, BPO, at US $499 million, was 2 percent ahead of the prior year, but down 44 percent against the third quarter.

“Managed services posted a fifth consecutive quarter of ACV over US $3.4 billion. While down year over year, it is worth noting the fourth quarter of 2020 included several very large mega-deals,” Hall said. “We are seeing an unprecedented level of sustained contracting activity in EMEA. The past four quarters have each registered at least 200 awards.”

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