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A report published this week by Information Services Group (ISG) shows the annual contract value (ACV) of managed services contracts valued at more than $5 million hit a record $8.4 billion for the third quarter, representing a 22 percent increase over the prior year. A record 564 managed services contracts valued at more than $5 million were awarded to MSPs in the third quarter, according to ISG.

Overall, the report finds the combined global market for both managed services and as-a-service platforms grew 40 percent to reach $21.8 billion—the highest quarterly growth rate since ISG began tracking these contracts in 2014.

Specific segments rise to the top of the MSP market

The cloud-based as-a-service market reached a record $13.4 billion in the third quarter, up 55 percent over the prior year to achieve its highest quarterly growth rate ever. Within this segment, both infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS) grew 57 and 53 percent to reach a record $9.7 billion and $3.7 billion, respectively.

IT outsourcing (ITO) came in at $6.1 billion, representing an 18 percent increase from last year, but down slightly from the previous quarter. Business process outsourcing (BPO), meanwhile, surged 32 percent to a record $2.3 billion, the report finds.

Through the first nine months of 2021, the combined global market generated a record $59.8 billion, representing a 26 percent increase. Managed services, at a record $24.2 billion, was up 17 percent, the fastest growth rate for this segment since 2014.

The value of as-a-service contracts reached a record $35.5 billion, a 33 percent increase. IaaS hit a record $25.8 billion representing at 36 percent increase. SaaS also established a new record of 9.7 billion, a 26 percent increase. ITO, meanwhile, rose 12 percent to a record $18.3 billion, while the BPO segment soared 40 percent to reach $5.9 billion.

Growth for MSPs on the horizon

As a result, ISG is now forecasting a managed services growth rate of 10 percent, up from a previous 9 percent rate. The market for cloud-based services (IaaS and SaaS) will grow 25 percent globally in 2021, up from a 21 percent forecasted growth last quarter.

ISG analysts note the challenge now is simply finding enough talent to meet all the demand for external IT expertise. The cost of acquiring and retaining that talent, however, might not all be passed on to customers so IT services providers should expect to continue to see pressure on profit margins, they added.

In the meantime, MSPs that service smaller customers could also find it difficult to hire and retain talent as competition for IT expertise becomes that much more intense, noted ISG analysts.

A return to growth in the wake of the economic downturn brought on by the COVID-19 pandemic is, of course, welcome news to MSPs that often aggressively compete for business to their own detriment. Less clear right now is the degree to which similar levels of growth might be seen in the small-to-medium business sector of the market that the bulk of most MSPs serve.

One way or another, however, it would appear to varying degrees that a proverbial flood is now finally starting to lift all MSP boats after one of the most challenging economic times in the history of IT services.

Photo: Monster Ztudio / Shutterstock

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Mike Vizard

Posted by Mike Vizard

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications including InfoWorld, eWeek, CRN, Baseline, ComputerWorld, TMCNet, and Digital Review. He currently blogs for IT Business Edge and contributes to CIOinsight, The Channel Insider, Programmableweb and Slashdot. Mike blogs about emerging cloud technology for Smarter MSP.

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