A report from Information Services Group (ISG) finds that billing for managed services valued over $5 million in the Americas grew by 22 percent in the third quarter. However, the global market declined by 2 percent, primarily due to delays in contract decisions in Europe and Asia.
The report highlights a notable increase in discretionary contracts in the U.S.—a positive development. Although these deals tend to be smaller than other types of contracts, ISG analysts point out that rising discretionary spending on managed services is a promising sign for managed services providers (MSPs) in the Americas.
ISG currently values the global managed services segment at $11.1 billion. Companies awarded a record 785 managed services contracts in the third quarter, marking an 8 percent year-over-year increase and a 12.5 percent rise from the previous quarter. Among them were eight mega-deals involving contracts valued at $100 million or more—down from nine in the prior year. On the other end of the spectrum, the volume of deals in the $5 million to $10 million range, the smallest measured by ISG, rose 6 percent versus the prior year.
IT outsourcing rebounds while BPO continues to decline
Within managed services, IT outsourcing (ITO) generated billings of $8.4 billion—down 2 percent from the prior year but up 7 percent from the second quarter. Business process outsourcing (BPO), at $1.9 billion, was down 16 percent year-over-year, but up 8 percent from the second quarter.
Global managed services, at $32.4 billion, saw a modest 1.5 percent increase—the lowest growth rate for the period in five years, after averaging more than 5 percent growth over the past three years. A total of 2,214 managed services contracts, including 22 mega-deals, have been awarded year to date, up 1 percent from the prior year.
Within managed services, ITO rose 5 percent, to $24.7 billion, while BPO slumped 22 percent, to $5.1 billion. Engineering, research and development (ER&D) services grew 36 percent year to date, to $2.6 billion. Software engineering, at 45 percent, represented the largest portion of ER&D spend. Top growth industries for managed services year to date included energy, up 23 percent; healthcare and pharmaceuticals, up 13 percent; manufacturing, up 9 percent, and BFSI, up 8 percent.
For the full year, ISG is maintaining its forecast of 1.3 percent revenue growth for managed services as a result of ongoing sluggish demand in Europe and Asia.
The future of managed services depends on adaptability and innovation
ISG analysts also emphasized that, over time, providers must evolve how they price managed services in the age of AI, based on the level of autonomy those services offer. This shift, dubbed autonomy level pricing, will cover a spectrum of capabilities ranging from relatively minimal AI assistance to fully automated management processes.
When it comes to managed services, the times, as always, are changing. The pace and scale of these changes are accelerating faster than ever, driven by the rapid evolution of the geopolitical and technological landscape.
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This post originally appeared on Smarter MSP.