- 2017 full-year combined ACV reaches record $43.3 billion, up 15 percent from prior year
- 4Q sees record ACV for IaaS and SaaS, as combined global market climbs 16 percent
- As-a-service demand continues to drive regional growth in Americas, EMEA
The global sourcing market produced its best quarter ever in the fourth quarter, capping a record year that saw the combined market surge 15 percent on strong demand for cloud-based as-a-service sourcing and modest growth in traditional sourcing, the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, shows.
Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show full-year ACV for the combined global market (including both as-a-service and traditional sourcing) climbed 15 percent, to a record $43.3 billion, driven principally by a 36 percent jump in the as-a-service segment, to $18.7 billion. Although traditional sourcing was up 3 percent for the year, to $24.6 billion, it reached $6 billion in ACV – a sign of a robust market – in three of the four quarters. Notably, there was a record number of contracts awarded in 2017, and even an uptick in the number of mega-deals (those worth $100 million or more annually), an especially encouraging sign in an era marked by a greater volume of lower-value contracts of shorter duration.
The fourth quarter of 2017 was a record-breaker for as-a-service sourcing, which, at $5.3 billion, was up 26 percent and surpassed $5 billion in ACV for the first time. Both Infrastructure-as-a-Service (IaaS), with ACV of $4.1billion, up 30 percent, and Software-as-a-Service (SaaS), with ACV of $1.2 billion, up 12 percent, reached quarterly highs. This strong demand, coupled with solid 8 percent growth in traditional sourcing, to $6.0 billion, meant the combined market reached a record high of $11.3 billion and surpassed the $10 billion quarterly ACV mark for only the fourth time in history.
“The global sourcing market has never been healthier,” said Steve Hall, partner and president, ISG. “The past year began and ended strongly in terms of market value, and the demand for all things digital shows no signs of abating, as enterprises embrace these new technologies not only for increased efficiency, but to find new ways to grow and get closer to their customers. The seemingly insatiable digital demand, marked most notably by the dramatic move of infrastructure and software services to the cloud, is driving overall market growth, but traditional sourcing is also growing, thanks in large measure to improving economic conditions worldwide.”
In traditional sourcing, information technology outsourcing (ITO) reached $19.0 billion for the year, up 11 percent versus 2016, fueled by a record number (1,251) of contract awards, most notably in the applications space. Business process outsourcing (BPO), meanwhile, declined 17 percent, to $5.5 billion. Within as-a-service, IaaS reached a record $14.1 billion, up 51 percent, while SaaS, at $4.6 billion, also established a new annual ACV record, but was up only 3 percent from the prior year.
By industry, the largest sourcing markets in 2017 were financial services, with ACV of $10.4 billion (up 28 percent); manufacturing, with ACV of $6.8 billion (up 12 percent); and business services, with ACV of $6.2 billion (up 15 percent). Telecommunications and media, with ACV of $4.8 billion, was down 7 percent from the prior year.
The Americas turned in another strong performance in the fourth quarter, generating combined-market ACV of $6.3 billion, up 28 percent from a year ago. Growth came from both traditional sourcing (up 26 percent, to $3.1 billion) and as-a-service sourcing (up 30 percent, to $3.2 billion). It was the second consecutive quarter the Americas generated traditional sourcing ACV of more than $3 billion, a level last seen in the first quarter of 2012.
For the full year, the Americas produced a record-high combined ACV of $23.1 billion, up 23 percent. New annual records were established for both traditional sourcing ACV ($11.8 billion, up 13 percent) and as-a-service sourcing ACV ($11.3 billion, up 37 percent).
Europe, Middle East and Africa (EMEA)
The EMEA market, which fell sharply in the third quarter after starting the year strongly, rebounded in the fourth quarter, up 27 percent sequentially from the prior quarter. Year-over-year, however, EMEA, was flat with the prior year, with combined fourth-quarter ACV of $3.8 billion in 2017. Traditional sourcing, at $2.4 billion, was down 11 percent versus the prior year. The UK and DACH region (Germany, Austria and Switzerland) turned in stronger results, but their performance could not overcome weakness in France and Southern Europe. Meanwhile, as-a-service sourcing, at a record $1.4 billion regionwide, was up 27 percent.
For the full year, EMEA generated $15.3 billion in ACV, up 3 percent against 2016. Traditional sourcing ACV of $10.4 billion was down 8 percent, but as-a-service sourcing soared 41 percent, to $4.9 billion.
Asia Pacific’s combined ACV came in at $1.25 billion for the fourth quarter, up 16 percent. Traditional sourcing was up 30 percent, to $609 million, and as-a-service sourcing reached a record high of $635 million, up 6 percent over the prior year.
For the full year, Asia Pacific’s combined market produced a record $4.88 billion of ACV, up 19 percent, consisting of $2.46 billion of as-a-service sourcing, up 21 percent to an all-time high, and $2.42 billion of traditional sourcing, up 17 percent on a record number of contracts (201).
“Looking ahead, we can’t ignore the changes in the U.S. tax law that greatly reduce the amount of taxes corporations will have to pay,” said Hall. “That will free up money to be invested in projects and digital transformation. Digital transformation is all but mandatory for enterprises to stay competitive, and that will ensure that both IaaS and SaaS will flourish.”
For 2018, on a global basis, ISG forecasts 20 percent-plus growth in as-a-service sourcing, and 4 percent growth in traditional sourcing.
About the ISG Index™
Now in its 61st consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, service 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.
The 4Q 2017 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 http://www.isg-one.com/research/research-detail-page/isg-index.
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.