Subscribe To Our Daily Enewsletter:

Cloud, As A Service Eat Traditional IT Outsourcing Revenues

The markets for big IT outsourcing deals and traditional IT outsourcing continues to shrink, while cloud-based as-a-service outsourcing continues to accelerate, according to 2016 data released by Information Services Group (ISG).

On the one hand, the findings aren’t surprising. But on the other hand, ISG’s research reveals key figures that quantify the dramatic shift from traditional IT outsourcing models to cloud-based as-a-service models like Infrastructure as a Service, Platform as a Service and Software as a Service.

Data from the ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show:

  • Full-year Annual Contract Value for the combined global market (including both as-a-service and traditional sourcing) climbed a strong 9 percent, to $37.4 billion, driven mainly by a big 38 percent gain in the as-a-service segment.
  • As-a-service Annual Contract Value also jumped the same 38 percent in Q4 2016, but the growth was not enough to offset a poor showing in the traditional sourcing market.
  • Fourth-quarter combined market Annual Contract Value of $9.6 billion was down 5 percent from Q4 2015.
  • The decline in traditional outsourcing Annual Contract Value is a trend ISG doesn’t see changing going forward, according to ISG President John Keppel.

How dramatic was the decline of traditional IT outsourcing ? These stats are telling:

  • IT Outsourcing was a $3.2 billion Annual Contract Value market in Q4 2016, down a stunning 39 percent from Q4 2015 prior year.
  • Overall, IT Outsourcing had an overall Annual Contract Value of $16.3 billion in 2016, down 5 percent for 2015.
  • Business process outsourcing (BPO) held up better. The BPO market generated $2 billion in Annual Consulting Value in Q4 2016, up 23 percent from Q4 2015. It was $6.5 billion for the year, down 2 percent from 2015.

For deeper details about trends across the Americas, EMEA and Asia Pacific, check out ISG’s information here.

Return Home

4 Comments

Comments

    Randy:

    Joe, are you talking about outsourcing IT iron (servers, backup, infrastructure) or are you talking about outsourcing IT services (MSP-type services such as support, desktops, mail, applications)?

    The point is unclear. What is the bottom line? Outsourcing is down? Are customers rolling their own and not going through the channel? Or is SaaS (cloud-based LOB apps) eating everyone’s lunch?

      Joe Panettieri:

      Hi Randy,

      Deeper details about the ISG report are here. IaaS and SaaS, in particular, eating away at big IT outsourcing deals where IBM, others used to manage customer equipment on-premises or in big vendor data centers. That’s hardly surprising given IBM financial reports in recent years, HPE’s decision to sell off/spin off IT services business with CSC deal, Dell’s decision to sell IT services to NTT, etc. But ISG is actually putting overall numbers on the trend(s).

      I think there’s plenty of opportunities for MSPs to manage customer workloads regardless of the workloads’ location(s).
      -jp

    Ilene Rosoff:

    I’d like to understand how this relates to the small business sector of companies with less than 250 employees and less than 20 million in annual revenue. Looking at the overall numbers without discerning market demographics is a little foggy.

      Joe Panettieri:

      Hi Ilene: Check in with organizations like Service Leadership, HTG Peer Groups, TruMethods and The 2112 Group. They often have data points on what they’re seeing in terms of MSPs working with SMB customers, financial trends, etc.

      Best,
      -jp

Leave a Reply

Your email address will not be published. Required fields are marked *