The global sourcing market in the first quarter surpassed $14 billion in value for the first time ever, but momentum slowed in March as concerns over the novel coronavirus (COVID-19) pandemic impacted spending on managed services, according to the latest state-of-the-industry report from Information Services Group (ISG).
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 managed services) rose seven percent, to a new quarterly high of $14.8 billion. Record ACV in the as-a-service segment, fueled by record demand for Infrastructure-as-a-Service (IaaS), propelled the global market to new heights.
As-a-service ACV reached $7.9 billion, up 11 percent, as IaaS ACV soared 18 percent, to a record $5.9 billion in the quarter. Demand was particularly strong for cloud services. The Software-as-a-Service (SaaS) segment, meanwhile, declined 4 percent, to $2.0 billion.
Managed services ACV rose two percent, to $6.8 billion, but was on pace for one of its best quarters ever until COVID-19 concerns slowed momentum in March. ISG projected managed services ACV in the quarter would have topped $7.3 billion, if not for the impact of the pandemic. Within this segment, information technology outsourcing (ITO) rose 11 percent, to $5.8 billion, while business process outsourcing (BPO) declined 30 percent, to $1.0 billion.
“We saw strong growth the first two months of the quarter, but a noticeable tail-off in March as the reality of the COVID-19 pandemic hit the market,” Steve Hall, partner and President of ISG, said. “Still, quarterly ACV smashed through the previous record high of $13.8 billion in last year’s Q1, fueled in large measure by increased demand this year for hyperscale services from the big cloud providers. Managed services results won’t be nearly so rosy in the second quarter, when the full impact of the pandemic hits the global services market, but we still see some upside in IaaS spending.”
The 1Q 2020 ISG Index was presented during a conference call and webcast today. To listen to an audio replay of the call and view presentation slides, visit this webpage.