A report published by the market research firm Information Services Group (ISG) finds revenue generated from enterprise-class technology, business, and IT services reached an all-time high in the first quarter of 2021.
The combined global market for deals that exceeded $5 million in value for both as-a-service offerings and managed services reached $17.1 billion, up 11 percent over a year ago and 4 percent over the fourth quarter of 2020. The first quarter of 2021 was the third consecutive quarter of global growth since the COVID-19 pandemic hit in the second quarter of 2020, according to ISG.
However, the as-a-service portion of the IT services is growing much faster than traditional managed services, the report notes. The value of deals involving the consumption of cloud services tracked by ISG increased 15 percent to reach a record $9.9 billion level in the first quarter. Within the as-a-service segment, revenues generated by infrastructure-as-a-service (IaaS) deals reached a record $7.2 billion, up 18 percent year-over-year. Software-as-a-service (SaaS) produced a record $2.7 billion, up seven percent year-over-year.
In contrast, the value of deals involving managed services reached $7.2 billion in the first quarter, up seven percent year-over-year, thanks in part to strong growth in Europe. Within managed services, IT outsourcing (ITO) reached $5.8 billion, up one percent from last year but down slightly from the previous quarter. Application development and maintenance (ADM) services were up seven percent but there was a six percent decline in infrastructure services revenue that is primarily generated by on-premises contracts. Meanwhile, business process outsourcing (BPO) increased by an astounding 43 percent from the prior year.
Market for cloud-based services
In general, ISG is forecasting the market for cloud-based services will grow 18 percent globally in 2021, down slightly from its 20 percent forecast at the start of the year, as the pace at which organizations are shifting to the cloud slackens slightly, mostly because as the overall economy strengthens organizations are not feeling as much pressure.
At the same time, however, ISG, has raised its 2021 growth forecast for managed services to five percent, up two points from the start of the year. As the pandemic subsides ISG is expecting organizations will be willing to commit to larger managed services contracts.
ISG doesn’t delineate how many of these deals might have been driven by digital business transformation initiatives versus simple efforts to lift-and-shift workloads into the cloud. However, a recent survey of business leaders published by NTT suggests reliance on MSPs to drive digital business transformation initiatives has significantly increased.
As the economy improves, the rate at which new applications are about to show up in production environments is only going to increase. That pace of application deployment is starting to far exceed what most internal IT teams can keep pace with, no matter how many automation frameworks they may employ. As such, the ISG projections for managed service spending in 2021 may be conservative. In fact, looking into 2022, demand for managed services is only likely to increase.
The challenge, of course, will be determining not just how much managed services will be consumed, but also on what platforms. After all, while the rate of spending in the cloud is clearly accelerating, there will be trillions of dollars being spent on on-premises platforms through the rest of the decade that will still need to be managed.
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