Combined market up 21%, as AI drives surging demand for cloud services

ISG forecasts 4.5% managed services growth, 18% XaaS growth globally in 2025

Americas Demand for IT, Business Services Hits Record High in Q4, ISG Index™ Finds

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The Americas market for IT and business services hit a record high in the fourth quarter, powered by large managed services contracts and surging, AI-driven demand for cloud services, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The Americas ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows fourth-quarter ACV for the combined market—including both managed services and cloud-based as-a-service (XaaS)—climbed 21 percent, to a record $14.4 billion. Versus the third quarter, combined ACV was up 10 percent sequentially.

“The Americas market saw renewed signs of strength in the fourth quarter,” said Todd Lavieri, vice chairman and president of ISG Americas and Asia Pacific. “Encouraged by improving economic conditions, and in some cases making up for some previously deferred projects, companies are increasing their investments in IT and business services, signing large contracts to reaccelerate their digital transformations and spending more on cloud services to further their AI ambitions.

“In particular, we’re seeing increased signs of activity in the BFSI [banking, financial services and insurance] sector, as those industries continue to look for ways to drive more efficiency, upgrade their platforms, and enhance cybersecurity and customer experience.”

Lavieri said ISG expects the Americas market for IT and business services to strengthen in 2025. “We think the growth we saw in the fourth quarter will continue, especially with a new U.S. administration coming in that promises a more favorable business environment. The Federal Reserve continues to seek a balance between supporting economic growth, while cooling the embers of inflation. The consensus forecast suggests the Fed will continue to slowly and steadily reduce key borrowing rates this year. That should stimulate tech spending, as companies continue to modernize their infrastructure and adopt AI for greater efficiency and innovation.”

Q4 Results by Segment

Fourth-quarter managed services ACV, at $5.7 billion, rose 3 percent versus the prior year and 11 percent against the third quarter. A total of 360 contracts were awarded, flat with the prior year, including eight mega-deals (contracts with annual value of at least $100 million), the most awarded in a quarter since the first quarter of 2006. The total ACV of the eight mega-deals signed in the fourth quarter was $1.3 billion, up 41 percent from the six mega-deals signed in the prior year. At the other end of the spectrum, 211 smaller contracts (those in the $5 million to $9 million range) were awarded during the quarter, up nearly 10 percent from the prior year. The number of new scope awards, at 234, was up 5 percent, and the ACV of those awards was up 19 percent.

Within managed services, IT Outsourcing (ITO) ACV was up 2 percent, to $4.3 billion, driven by growth in data center services, which offset a decline in application development and maintenance services. Business process outsourcing (BPO), meanwhile, advanced 6 percent, to $1.3 billion, on the strength of finance and accounting and facilities management services.

In the cloud-based XaaS segment, ACV soared 36 percent, to $8.7 billion, fueled by 53 percent growth infrastructure-as-a-service (IaaS), to $6.2 billion, and 6 percent growth in software-as-a-service (SaaS), to $2.5 billion.

Full-Year Results

For the full year, the Americas combined market generated a record $51.8 billion of ACV, up 9 percent—a complete reversal from 2023, when the combined market was down 7 percent.

Managed services ACV was down 5 percent, to $20.7 billion, as the number of contracts (1,428) declined by 3 percent, including lower volumes of mega-deals, new-scope awards and restructured contracts. Within managed services, ITO slid 6 percent, to $15.1 billion, while BPO declined 2 percent, to $5.6 billion.

Among major industries, ACV in the all-important BFSI sector was down 3 percent for the year, boosted by 21 percent growth in the fourth quarter. Manufacturing ACV was up 24 percent for the year, while travel, transport and leisure was up 70 percent, as other sectors saw declines.

ACV for XaaS climbed 20 percent, to $31.1 billion, compared with a 16 percent decline in 2023. IaaS rose 31 percent, to $21.6 billion, and SaaS was up 1 percent, to $9.5 billion. XaaS represented 60 percent of combined market ACV last year, up from 54 percent in 2023.

2025 Global Forecast

For the full year, ISG is forecasting 4.5 percent revenue growth for managed services, up from 1.7 percent growth in 2024, and 18 percent revenue growth for XaaS, in line with the prior year.

“Globally, we expect a gradual recovery in enterprise demand for IT and business services, led by the Americas, with Europe to follow later in the year,” said Lavieri. “Tech modernization and AI adoption will act as market tailwinds, and we expect a recovery in BFSI spending this year.”

About the ISG Index™

The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 89 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media.

The 4Q24 Global ISG Index results were presented during a webcast January 16. To view a replay of the webcast and download presentation slides, visit this webpage.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, 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 AI, 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 1,600 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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