Press Release

ISG Index™: Growing Move to Cloud Drives Global Sourcing Market to Record High in Q1

Global combined ACV reaches record $13.5 billion, powered by 26% growth in As-a-Service

Push for digital reflected in strong IaaS and ADM growth

Company Release - 4/10/2019 9:00 AM ET

STAMFORD, Conn., April 10, 2019 /PRNewswire/ -- The continuing push to move work to the cloud propelled the global sourcing market to a record high in the first quarter, with contract value exceeding $13 billion for the first time, according to the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), 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 first-quarter ACV for the combined global market (both as-a-service and traditional sourcing) climbed 12 percent, to a new quarterly high of $13.5 billion.

As-a-service sourcing, particularly Infrastructure-as-a-Service (IaaS), was the catalyst for first-quarter growth, breaking through the $6 billion mark for the first time and turning in its best quarter ever, at $6.5 billion, up 26 percent. IaaS was up 37 percent, to $4.9 billion, while Software-as-a-Service (SaaS) was relatively flat, up 1 percent, to $1.6 billion.

Traditional sourcing ACV for the quarter rose 2 percent, to $7.0 billion, maintaining a streak of seven straight quarters at or above $6 billion. Within traditional sourcing, IT outsourcing (ITO) rose 7 percent, to $5.6 billion, fueled by 7 percent growth in application development and maintenance (ADM) services, while business process outsourcing (BPO) declined 14 percent, to $1.4 billion. Contract volume, at 438 deals, dropped 11 percent from a strong first quarter a year ago.

"The numbers this quarter, while still impressive, held no surprises," said Steve Hall, partner and president of ISG. "Much of the growth is being fueled by a robust IaaS market, with hybrid and multi-cloud emerging as the architecture of choice. On the traditional side, ITO is being paced by ADM, as enterprises continue to spend aggressively on application and architecture modernization."

By most accounts, the industry remains healthy and on an upward trajectory, said Hall. Over the trailing 12 months, the combined market was up 20 percent, to $51.1 billion; traditional sourcing rose 8 percent, to $27.4 billion, while as-a-service sourcing climbed 37 percent, to $23.7 billion.

Americas

After producing its best quarter ever in the 2018 fourth quarter, the Americas pulled back slightly but still registered its second-best quarter ever, with combined ACV of $6.6 billion, up 1 percent versus the prior year. Traditional sourcing declined 16 percent, to $3.2 billion, with award volume down 14 percent, to 228 contracts, but as-a-service sourcing climbed 25 percent, to $3.4 billion – the first time ever the value of cloud-based IaaS and SaaS services eclipsed traditional sourcing in this market. IaaS is the main driver of as-a-service growth, with ACV up 39 percent, to $2.4 billion. SaaS, meanwhile, rose 2 percent, to $1 million.

Europe, Middle East and Africa (EMEA)

EMEA set a record with $4.9 billion of combined-market ACV, up 23 percent. Traditional sourcing climbed 24 percent, to $3.2 billion, with particular strength in DACH, as well as gains in France, Southern Europe and the Nordics. The UK, meanwhile, was flat. Contract volume, although down 7 percent, was paced by 58 percent growth in larger awards ($40 million-plus). As-a-service ACV advanced 21 percent, to $1.7 billion; IaaS drove all the growth in the first quarter, up 33 percent, to $1.3 billion, while SaaS was down 4 percent, to $433 million.

Asia Pacific

Combined market ACV in Asia Pacific reached $2.0 billion, the region's second-best quarter ever, trailing only the 2018 second quarter. Traditional sourcing, at $631 million, was up 34 percent versus the prior year, led by strong gains in Australia-New Zealand and North Asia. As-a-service sourcing set another quarterly record, with ACV of $1.36 billion, up 33 percent. IaaS continued to power this segment, with ACV of $1.16 billion, up 37 percent, while SaaS rose 14 percent, to $190 million.

Forecast

"While the numbers this quarter are sunny, some clouds may be moving in," said Hall. "Large enterprises appear to be preparing for a downturn in the U.S. during the second half of the year. Growth has slowed in Europe and China, and concerns of a broader, global slow-down remain.

"Despite these headwinds, we are maintaining our forecast of 25 percent annual growth for the as-a-service sector in anticipation of continued strong demand for IaaS as enterprises move to new transformative operating models and transition to digital. However, given the slower start in the Americas and global macro-economic concerns, we are lowering our annual growth forecast for traditional sourcing from 4.5 percent to 3.2 percent."

About the ISG Index™

Now in its 66th consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, providers, analysts and the media. For more than 15 years, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.

The 1Q 2019 ISG Index was presented during a conference call and webcast for media and analysts today. To listen to an audio replay of the call and view presentation slides, please visit this webpage.

For a snapshot of the 1Q19 ISG Index results, view this infographic.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 70 of the top 100 enterprises in the world, 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 1,300 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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SOURCE Information Services Group, Inc.