ISG Index™: Cloud-Based Services Continue to Pace Global Sourcing Growth
STAMFORD, Conn., Oct. 10, 2018 /PRNewswire/ -- Enterprise demand for cloud-based technology and business solutions continues to drive growth in the global sourcing market, with as-a-service contract value climbing 47 percent in the third 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.
Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show third-quarter ACV for the combined global market (including both as-a-service and traditional sourcing) rose 19 percent, to $11.7 billion. All the growth was attributable to as-a-service sourcing, which reached another record high with ACV of $5.7 billion, up 47 percent. Traditional sourcing was flat for the quarter, at $6.0 billion.
The continuing surge in as-a-service value was powered this quarter by a record $4.2 billion in Infrastructure-as-a-Service (IaaS) ACV, up 53 percent. Software-as-a-Service, meanwhile, rose 34 percent, to $1.5 billion, as enterprises continue to move more workloads to the cloud.
"The combined global market pulled back a bit this period after an all-time high ACV last quarter, but growth remained robust, thanks to continued strong demand for as-a-service sourcing," said Steve Hall, partner and president of ISG. "Digital business continues to accelerate, which is reflected in the rapid growth of cloud-based IaaS and SaaS solutions and growth in such areas as ADM, where new applications infused with analytics and AI are transforming traditional ITO."
For the first nine months of 2018, global combined ACV reached an all-time high of $35.4 billion, up 18 percent over the same period last year, and up nearly a third from 2016. As-a-service growth was the driver, with record year-to-date ACV of $15.9 billion, up 43 percent. Traditional sourcing ACV was up 3 percent, to $19.5 billion, on record volume of 1,351 contracts. Most (61 percent) were smaller contracts – in the $5 million to $10 million range – up 8 percent over the prior-year period.
Year to date, IaaS ACV was up 48 percent, to $11.5 billion, as enterprises continue to modernize their infrastructure with machine learning, AI, IoT, serverless computing and data analytics. SaaS ACV was up 31 percent, to $4.4 billion, fueled in large measure by enterprises expanding platform services with existing providers. Traditional IT outsourcing (ITO), up 7 percent, to $15.4 billion, was paced by growth in ADM services, while business process outsourcing (BPO) was off 10 ercent. Demand, however, remains strong for industry-specific BPO.
The Americas, the world's largest combined commercial sourcing market, generated combined ACV of $6.1 billion in the third quarter, up 6 percent. Traditional sourcing, although down 15 percent to $3.1 billion, surpassed $3 billion in ACV for the fifth straight quarter, the region's best sustained performance ever. ADM continued to drive ITO growth, but BPO was down sharply on a difficult comparison with last year's third quarter. As-a-service sourcing ACV, meanwhile, was up 41 percent, to $3 billion, fueled by quarterly records for both IaaS ($2.0 billion, up 48 percent) and SaaS ($972 million, up 29 percent). Digital transformation is contributing to strong as-a-service growth.
Europe, Middle East and Africa (EMEA)
The EMEA market generated combined third-quarter ACV of $4.1 billion, up 56 percent over a weak prior-year quarter, but down 11 percent over the 2018 second quarter. Traditional sourcing climbed 55 percent, to $2.5 billion, showing particular strength in the UK and DACH (Germany, Austria and Switzerland). The explosive growth of as-a-service sourcing continued, with ACV up 56 percent to a record $1.6 billion, the region's fifth consecutive record-setting quarter for as-a-service sourcing. EMEA has lagged behind the rest of the world in adopting cloud-based solutions, but with this recent sustained growth spurt – including the highest year-over-year growth rates for IaaS and SaaS among the three regions in the latest quarter – EMEA appears to be catching up.
Asia Pacific's combined ACV was $1.5 billion, up 2 percent, the second straight quarter at this level, but down 21 percent against last quarter's record-setting ACV of $1.9 billion. Growth in as-a-service sourcing continued to buoy this market, with ACV of $1.05 billion up 51 percent year over year. It was the second straight quarter as-a-service ACV topped $1 billion, trailing only last quarter's record of $1.09 billion. Traditional sourcing, meanwhile, turned in its weakest quarter since the first quarter of 2017, with ACV of $468 million down 41 percent from the prior year.
"Moving into the final quarter of 2018, we expect IaaS growth rates for the full year to remain in the range we forecast last quarter, that is, in excess of 45 percent for public cloud and more than 30 percent for IaaS in total," Hall said. "We've increased our full-year SaaS forecast to 17 percent, up a percentage point from last quarter. Traditional sourcing, for the full year, remains in the 4 percent growth range we forecasted last quarter."
About the ISG Index™
Now in its 64th 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 3Q 2018 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 3Q18 ISG Index results, view this infographic.
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 75 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; technology 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 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.
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