Despite some macroeconomic headwinds the annual contract value for managed services contracts involving larger enterprise IT organizations increased 16 percent in the fourth quarter of 2021 with a record 2,176 contracts being signed.
According to Information Services Group (ISG), the number of managed service contracts involving deals greater than $5 million for the first time exceeded 2,000 in a quarter, with (ACV) reaching $33 billion for the quarter.
Within the managed services category, IT outsourcing grew 12.5 percent to reach a record $25.1 billion thanks to 1,560 contracts being signed, a 9 percent increase in volume. Application development and maintenance (ADM) services led the way with a 40 percent increase to achieve a record $14.3 billion, even as infrastructure services declined 11 percent to $10.8 billion mainly because of the ongoing shift to the cloud.
Overall, ISG finds the global XaaS market climbed 38 percent, to a record $51.3 billion, in 2021. Infrastructure-as-a-service (IaaS) jumped 40 percent to a record $38 billion, its best growth rate since 2018. Software-as-a-service (SaaS) advanced 31 percent, its best annual growth rate ever, to a record $13.3 billion. Business process outsourcing (BPO), meanwhile, turned in its second-best year ever, with ACV of $7.8 billion, up 31 percent, to a record 616 contracts.
Pandemic, inflation and the “Great Resignation” impact IT services demand and supply
Nevertheless, the fourth quarter did show signs of a slowdown compared with the prior quarter. While the combined market, at a record $22.9 billion, increased 32 percent over a year ago, contract values for all types of IT services only increased 1 percent over the prior third quarter. ISG analysts report that the ongoing pandemic, inflation, supply chain disruptions, and the Great Resignation trend are all taking a toll both on demand for IT services and the ability of IT services firms to fulfill it.
As a result, ISG is forecasting the global market for cloud-based services (IaaS and SaaS) will grow 20 percent while the global market for managed services will increase 5.1 percent in 2022. Digital transformation, the cloud, and data and analytics are all driving demand for managed services. In fact, the average growth rate for managed services over a 10-year average is only 2 percent, noted ISG.
ISG analysts also noted many IT services providers are now aggressively recruiting more junior talent, not only to replace more seasoned IT professionals that have left the workforce, but to also reduce overall costs in response to increased price sensitivity among end customers.
Efficiency will help MSPs thrive in 2022
It may be too early to say how 2022 will turn out for MSPs but, as always, MSPs that find ways to become more efficient will thrive at the expense of rivals. ISG notes that 2021 was a record year for mergers and acquisitions in the IT services industry. There were 47 percent more deals in 2021 than in 2020, and the value of those deals was 63 percent higher, according to ISG.
One way or another 2022 is shaping up to be memorable as the third year of a COVID crisis continues to transform every aspect of how IT services are delivered and consumed.
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