Europe’s managed services contracts in the second quarter exceeded £2.4 billion for the second quarter running, indicating a potential return to pre-2015 spending levels, according to the latest state-of-the-industry report from Information Services Group (ISG)
The EMEA ISG Index measures commercial outsourcing contracts with annual contract value (ACV) of €4 million or more, shows the region’s combined first-half ACV, including managed services and as-a-service contracts, was up 12 percent.
Managed services, with two straight quarters, were up 10 per cent against the softer 2018 period. Within managed services, IT outsourcing (ITO) rose 12 percent, while business process outsourcing (BPO) was up a percentage point. The second quarter was the third quarter in the last five that managed services ACV exceeded €2.7 billion.
With continuing strong demand for cloud-based solutions, as-a-service ACV climbed 17 percent, Infrastructure-as-a-Service (IaaS) surged 19 percent, while Software-as-a-Service (SaaS) rose nine percent.
Growing demand for as-a-service solutions shows no sign of abating, with these solutions now accounting for 36 per cent of combined market spending. In the second quarter, as-a-service is up to nine per cent. IaaS, which is becoming the digital foundation for businesses (and has tripled in growth since 2016), is up seven percent. Software-as-a-Service, up 16 percent, reached a quarterly record of €437 million.
Managed services ACV, meanwhile, dropped one percent in the second quarter but the number of contract awards reached 204, up 10 percent over the prior year, only the third time in the history of the ISG Index the region surpassed the 200-award level in a quarter. ITO was up two percent, but BPO slumped 14 percent.
Steve Hall, partner and president of ISG, said: “For the past couple of quarters, we’ve been bracing for the impact of some of the macro risks that could affect the global economy — Brexit, tariffs and trade wars. But the talk about overall market growth has turned surprisingly positive. There continue to be recession concerns in European markets, especially the UK and Germany, but overall technology spend is robust. With the Brexit deadline pushed farther out once again, uncertainty has become the new normal for many businesses in the UK, and companies seem to be making strategic adjustments.”
Globally, managed services ACV was down three per cent in the second quarter against a very strong 2018 period, but combined market ACV was up five percent, driven by 14 percent growth in as-a-service contracting.
Growth in managed services was driven by the Nordics, Benelux and Southern Europe. In Europe’s broader markets, France’s first-half ACV grew 29 percent, to £426 million. Overall, the outlook is stable: a total of 43 deals were signed in the first half, which compares favourably with the 27 deals signed in the first half of 2018.
In the UK and Ireland, half-year ACV was down marginally (0.4 per cent ), at £1.4 billion, as the UK still feels the impact of Brexit uncertainty. The number of outsourcing deals also was down, from 111 in the first half of 2018 to 97 this year. ISG finds UK companies are continuing to exercise caution in their managed services investments, instead of focusing spending on new technologies that will increase their agility and efficiency.
