The global market for managed IT and business services saw a 7% increase in combined market ACV, reaching $24.8 billion in the best quarter in two years. Cloud XaaS drove the market, increasing by 11%, while managed services saw only a slight uptick. ISG predicts a slow growth environment to continue, lowering the 2024 forecast for managed services growth to 2% and XaaS forecast to 14%.
According to Steve Hall, president and chief AI officer of ISG, the industry is experiencing low-single-digit growth due to pressure on discretionary spending. Revenue growth slowed in the second quarter, with provider margins under pressure. The XaaS segment grew by 11%, with IaaS ACV reaching $10.9 billion, driven by the Big Three hyperscalers. On the other hand, SaaS remained steady at $3.8 billion.
Managed services generated $10.1 billion in ACV, up 1.2% year-over-year, with 723 contracts awarded during the quarter. ITO saw a 2% increase in ACV, while BPO declined by 1%. The first half of the year saw a combined market ACV of $49.3 billion, with XaaS up by 11% and managed services remaining flat.
ISG is forecasting a 2% revenue growth for managed services and a 14% growth for XaaS for the full year. The industry continues to focus on cost optimization, with uncertainty persisting in the market. ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry.