Demand for managed services appears to be on the upswing once again, though signs are emerging that certain segments are coming under sustained pressure.
A quarterly Information Services Group (ISG) Index tracking new bookings exceeding $5 million in value shows that the high end of the managed services market delivered its second‑best quarter ever. Bookings for new services reached $11.2 billion in the quarter, up 3 percent compared to the prior year, after two consecutive quarters of year‑over‑year declines.
Of that growth, $4 billion represented entirely new activity rather than extensions of existing relationships. In terms of new billings, the first quarter of 2026 ranked as the second‑strongest of the 21 quarters ISG has tracked to date.
Deal volume grows, but smaller contracts show softness
A total of 744 managed services contracts were awarded in the first quarter, an increase of 1 percent year over year. That total included six mega‑deals valued at $100 million or more.
At the other end of the market, smaller deal activity cooled following a surge in the third quarter of last year. The volume of deals in the $5 million to $10 million range declined slightly compared to last year, marking the fourth decline in this segment over the past five quarters.
By deal type, contracts involving new scope rose 11 percent, while the volume of restructured contracts fell 19 percent, according to the report.
ITO weakness contrasts with growth in fully managed services
Performance varied significantly across managed services categories. Information technology outsourcing (ITO) billings fell 7 percent year over year to $7.9 billion, driven largely by weakness in EMEA and Asia Pacific, although billings increased 1.2 percent compared to the fourth quarter.
Standalone application development and maintenance (ADM), the largest portion of ITO, declined sharply, down 20 percent year over year. In contrast, billings for fully managed ITO services that combine managed ADM and infrastructure services surged 152 percent to $1.3 billion. This trend suggests growing momentum toward provider consolidation within large enterprises.
ISG is also tracking the impact of artificial intelligence on managed services. On a weighted basis, demand for managed AI services has remained flat year over year since 2022.
Overall, ISG projects that managed services will grow 2.1 percent in 2026, driven in part by large organizations consolidating the number of managed services providers they engage.
Strong growth in BPO and the broader IT services market
Demand for other IT services categories remains robust. Business process outsourcing (BPO) billings jumped 62 percent following a weak first quarter in 2025, reaching $2.5 billion. The segment was also up 12 percent sequentially from the fourth quarter.
Growth within BPO was led by facilities management and human resources services, while contact center services experienced a 30 percent decline.
Despite ongoing market pressures, the combined global market for managed services and cloud‑based software and infrastructure services reached a record $39.4 billion, up 29 percent year over year. This marked the highest growth rate for the combined market in four years and the seventh consecutive quarter of double‑digit, year‑over‑year growth. Over that period, growth averaged nearly 20 percent per quarter.
In dollar terms, the combined market added nearly $9 billion in new billings year over year and approximately $4.5 billion, or 13 percent, compared to the fourth quarter.
While market forecasting remains challenging amid ongoing economic uncertainty, overall demand for IT services continues to show resilience. The central challenge—and opportunity—remains identifying the specific segments best positioned for sustained growth in the quarters ahead.
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