Global Market for IT and Business Services Turns in Record 2021, Even as Pace Slows in Q4, ISG Index Finds
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Global combined ACV hits record $84 billion, up 29% for the year
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Fourth-quarter global combined ACV, up 32% year over year, only 1% higher than Q3 2021
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ISG forecasts 20% XaaS growth and 5.1% managed services growth for 2022
The global market for technology and business services grew at its fastest pace ever, soaring to record heights in 2021, even as growth slowed in the fourth quarter, according to the latest state-of-the industry report from Information Services Group (ISG) , a leading global technology research and advisory firm.
Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show full-year ACV for the combined global market (both as-a-service and managed services) grew by 29 percent, to $84.2 billion—the highest annual growth rate and the greatest level of ACV for the combined market since ISG began tracking as-a-service (XaaS) spending in 2014.
The fourth quarter, however, showed signs of a slowdown compared with the prior quarter. While the combined market, at a record $22.9 billion, was up 32 percent over the Covid-impacted 2020 fourth quarter, growth slowed to just over 1 percent versus the third quarter of 2021.
“Even with the headwinds of the ongoing pandemic, inflation, supply chain disruptions and the Great Resignation, ISG still forecasts healthy growth rates for both managed services and XaaS in 2022,” said Steve Hall, president of ISG. “Many large enterprises are in the early stages of their digital and cloud journeys and are looking to invest further in transformation. As the role of technology morphs from cost savings to revenue generation, technology adoption will only increase over time. That market-driver will more than offset the current market challenges.”
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“Even with the headwinds of the ongoing pandemic, inflation, supply chain disruptions and the Great Resignation, ISG still forecasts healthy growth rates for both managed services and XaaS in 2022”
Full-Year Results by Segment
The global XaaS market climbed 38 percent, to a record $51.3 billion, in 2021. Within the XaaS segment, infrastructure-as-a-service (IaaS) jumped 40 percent, to a record $38 billion, its best growth rate since 2018. Software-as-a-service (SaaS), advanced 31 percent—its best annual growth rate ever—to a record $13.3 billion.
The managed services segment also hit a new annual ACV record of $33 billion, up 16 percent versus the prior year, on a record 2,176 contracts, up 15 percent. It was the first time contracting activity surpassed 2,000 deals in a year. Within managed services, IT outsourcing (ITO) grew 12.5 percent, to $25.1 billion, a new record, on record volume of 1,560 contracts, up 9 percent. Application development and maintenance (ADM) services led the way, up 40 percent, to a record $14.3 billion, even as infrastructure services declined 11 percent, to $10.8 billion.
Business process outsourcing (BPO), meanwhile, turned in its second-best year ever, with ACV of $7.8 billion, up 31 percent, on a record 616 contracts, up 32 percent against 2020. Within BPO, engineering and R&D services shot up 170 percent over the prior year, to $1.8 billion.
Fourth-Quarter Results by Segment
The global XaaS market climbed 47 percent, to a record $14.3 billion, in the fourth quarter. IaaS rose 46 percent, to a record $10.7 billion, while SaaS jumped 50 percent, to a record $3.7 billion.
Managed services ACV advanced 13 percent, to $8.6 billion, on 533 contracts, both down from the prior quarter. There were 7 mega-deals (contracts with ACV of greater than $100 million) in the fourth quarter, the highest number since the third quarter of 2019. ITO was up 14 percent, to a record $6.75 billion, while BPO grew 8 percent, to $1.9 billion, but was off 21 percent from the prior quarter.
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2022 Forecast
ISG is forecasting the global market for cloud-based XaaS (IaaS and SaaS) will grow 20 percent and the global market for managed services will advance 5.1 percent in 2022.
“Inflation and heightened regulatory pressures create a less-than-ideal environment for XaaS going forward, and that will lead to a series of fits and starts on a quarterly basis throughout 2022,” said Hall. “However, companies with secular growth themes and pricing power will continue to flourish and mitigate the effects of these macro forces. Expected growth is still high but will be at the lower end of the 20 percent to 25 percent range we have seen in recent years.”
Commenting on the market for managed services, Hall said: “We continue to see a solid pipeline of managed services deals, especially in digital transformation, cloud, and data and analytics. Clients across all industries are accelerating spending to remain competitive. While our forecast may seem conservative compared with the growth we saw in 2021, it is far higher than the 10-year average of 2 percent we saw during 2010 to 2020 period.”
