COVID-19 Pulls Q2 Global Sourcing Market Down 5%: ISG Index™

STAMFORD, Conn., July 08, 2020 (GLOBE NEWSWIRE) -- Global sourcing slowed dramatically in the second quarter, as enterprises sharply reduced managed services spending to contend with the impacts of the COVID-19 pandemic, while still investing in ongoing digital transformation efforts, 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 second-quarter ACV for the combined global market (both as-a-service and managed services) declined 5 percent, to $13.2 billion, a figure that was down almost $2 billion, or 12 percent, from a record high in the first quarter.

Almost all the decline was due to a double-digit drop-off in managed services spending. Managed services ACV fell 16 percent, to $6.0 billion, as the number of contracts in this space dropped 11 percent, to 445, versus the prior year. Contract value also was smaller; the number of contacts valued at more than $50 million per year was down by half versus the first quarter of 2020. Within managed services, information technology outsourcing (ITO) declined 10 percent, to $4.8 billion, and business process outsourcing (BPO) was off 34 percent, to $1.2 billion.

Cloud-based as-a-service sourcing, on the other hand, was up 7 percent, to $7.2 billion of ACV, although down 12 percent sequentially from the first quarter. The growth came entirely from the infrastructure-as-a-service (IaaS) space, which rose 10.5 percent, to $5.4 billion. Even so, this was the slowest quarterly growth for IaaS since ISG began reporting on this segment in 2015. Software-as-a-service, meanwhile, declined 2 percent versus the prior year, to $1.8 billion, and was off 11 percent from the first quarter.

“In line with our prediction last quarter, the managed services market was off 16 percent as enterprises reined in operating expenses in the face of a pandemic-related slowdown in business activity,” said Steve Hall, partner and president of ISG. “As-a-service spending did a bit better than we expected, bolstered by IaaS growth as many enterprises accelerated their infrastructure investments to support work-from-home needs. However, the economic shock of the pandemic among small to medium-sized businesses, in particular, resulted in a decline in SaaS, although demand for SaaS-based collaboration tools helped moderate the slowdown.”

For the first half, ISG reported global combined market ACV of $28.2 billion, up 2 percent. As with the second quarter, managed services pulled down first-half results, with ACV of $12.8 billion, off 7 percent. Within managed services, ITO, at $10.6 billion, eked out 1 percent growth, while BPO dropped 33 percent, to $2.2 billion. As-a-service ACV, meanwhile, came in at $15.4 billion for the first half, up 11 percent, although its growth was about half that of the prior year. IaaS was up 16 percent, to $11.5 billion, while SaaS declined 3 percent, to $3.9 billion.

Americas

The Americas was the only region to show growth in the second quarter of 2020, although it was helped by a favorable comparison to a weak second quarter last year. Combined market ACV, at $6.8 billion, was up 6.5 percent versus the prior year, but down 4 percent against the average of the previous five quarters.

As-a-service rose 11 percent versus the prior year, to $3.9 billion, powered by 14 percent growth in IaaS, to $2.7 billion, while SaaS rose 4 percent, to $1.2 billion. Yet, compared with the first quarter, when it surpassed $4 billion of ACV for the first time, as-a-service was down 10 percent sequentially. Managed services increased a slim 1 percent, to $2.9 billion, entirely on the strength of ITO, which climbed 18 percent, to $2.2 billion. BPO, on the other hand, was off 29 percent, to $730 million. Against the average of the prior five quarters, however, managed services was down 12 percent.

Europe, Middle East and Africa (EMEA)

EMEA saw its combined market drop 9 percent, to $4.5 billion, the first time since 2018 the region has recorded back-to-back declining quarters. Managed services weighed down overall results, with a 21 percent drop in ACV, to $2.6 billion. Both ITO ($2.2 billion, down 19 percent) and BPO ($396 million, down 31 percent) saw double-digit declines versus the prior year. As-a-service, meanwhile, was up 13 percent, to $1.9 billion, on a 23 percent surge in IaaS ACV, to $1.4 billion, even as SaaS declined 8 percent, to $479 million.

Asia Pacific

Combined market ACV in Asia Pacific slumped 24 percent versus the prior year, to $1.9 billion. The news was bad across the board, as managed services plummeted 47 percent, to $529 million, with a 42 percent drop in ITO, to $477 million, and 71 percent tumble in BPO, to $52 million. The decline in as-a-service was less severe, down 9 percent versus last year, to $1.4 billion. Within this segment, IaaS was down 7 percent, to $1.2 billion, while SaaS dropped 23 percent, to $165 million.

Forecast

ISG is forecasting slight sequential growth for the combined global market in the third and fourth quarters of 2020. For the full year, the firm is projecting the managed services market will be down 7.5 percent, slightly more than the 7 percent decline it forecasted for 2020 in the first quarter.

“Looking ahead to the final two quarters of 2020, we expect the volume of larger deals to be down as enterprises focus more in the near term on business resiliency and operating efficiency than on broad-based digital transformation,” said Hall.

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 71 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. 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 2Q 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.

For a snapshot of the 2Q 2020 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 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 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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Will Thoretz
Information Services Group, Inc. 
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Jim Baptiste
Matter Communications for ISG
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