Summary:
- The latest quarterly report from ISG shows record-breaking demand for IT and business services in the Americas, driven by AI adoption, cloud investments, and cost optimization.
- Managed services and cloud-based XaaS saw significant growth in Q2 2024, with managed services ACV rising 20% and XaaS ACV increasing by 29%.
- Industries like manufacturing, travel, transportation, and BFSI experienced notable growth, reflecting a continued focus on transformation-driven services in the region.
Rewritten Article:
The Americas region has witnessed a surge in demand for IT and business services, as revealed in the most recent quarterly report by Information Services Group (ISG), a renowned technology research and advisory firm specializing in AI. This surge is attributed to the increasing adoption of AI, cloud investments, and strategic cost optimization efforts by enterprises.
According to the ISG Index, which monitors commercial outsourcing contracts valued at $5 million or more, the combined annual contract value (ACV) for managed services and cloud-based XaaS in Q2 2024 reached an impressive $15.5 billion. This marked a 26% year-over-year increase, the highest quarterly growth rate observed in the region in three years, and a 6% rise from the previous quarter.
The growth in the Americas region was primarily driven by significant gains in managed services and cloud services. Managed services ACV saw a 20% increase year-over-year, reaching $5.9 billion, while cloud-based XaaS experienced a faster growth rate of 29%, bringing its ACV to $9.6 billion. ISG attributes this momentum to enterprises scaling their AI initiatives through cloud platforms.
Furthermore, there was a notable increase in contract activity, with a total of 392 managed services deals signed in the quarter, marking a 10% rise from the previous year. Noteworthy were the five mega-contracts worth at least $100 million in ACV, showcasing an 81% surge year-over-year. This emphasizes a shift towards larger, consolidated outsourcing agreements to streamline costs and drive innovation.
While there was a slowdown in lower-value contracts below $10 million, likely due to delays in discretionary spending, new-scope contract volume and ACV climbed by over 30% compared to Q2 2023, indicating sustained demand for transformation-driven services.
Several sectors in the Americas region exhibited remarkable growth, with manufacturing surging by 69%, travel, transportation, and hospitality rising by 68%, and energy-related managed services jumping by 78%. The banking, financial services, and insurance (BFSI) sector, the top market by contract value, grew by 20%, followed by healthcare with a 33% increase.
Todd Lavieri, ISG Vice Chairman and President for the Americas and Asia Pacific, noted, "The market acceleration in the Americas continues, with enterprises focusing on cloud transformation and AI-driven reinvention, while leveraging managed services to reduce costs and invest in innovation."
In the realm of managed services, application development and maintenance (ADM) drove growth for IT outsourcing (ITO), with ITO ACV rising by 32% to $4.6 billion. Business process outsourcing (BPO) declined by 20% to $920 million, reflecting challenges across service lines. Engineering, research, and development (ER&D) saw a 35% increase to $326 million.
On the XaaS front, infrastructure-as-a-service (IaaS) witnessed substantial growth, jumping by 39% to $7.2 billion, while software-as-a-service (SaaS) grew more moderately at 7%, reaching $2.5 billion.
Looking ahead, ISG maintains its 2025 forecast of 1.3% growth in managed services revenue but has revised its growth outlook for XaaS upward to 21%, based on continued AI adoption and strong demand for digital transformation. This indicates that businesses in the Americas are committed to scaling AI, consolidating vendor relationships, and driving technology-driven efficiencies, irrespective of economic challenges.
