Europe’s Spending on IT, Business Services Hits Record in 2021, Amid Signs of Slowing Demand in Q4, ISG Index™ Finds
The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market, which includes both as-a-service (XaaS) and managed services, reached a record US $26.5 billion for the year, up 23 percent, the region’s highest annual growth rate ever.
Managed services climbed 11 percent, to US $13.9 billion—its highest level in a decade—including a record US $11.4 billion for IT outsourcing (ITO), up 5 percent, and US $2.6 billion for business process outsourcing (BPO), up 45 percent. XaaS soared 41 percent, to a record US $12.6 billion, on 44 percent growth in infrastructure-as-a-service (IaaS), to a record US $9.2 billion, and 33 percent growth in software-as-a-service (SaaS), to a record US $3.4 billion.
The record performance for the year extended to the fourth quarter, although the closing period showed signs of slowing demand. Combined ACV rose 9 percent, to US $7.1 billion—the first time it has broken through the US $7 billion level in a quarter. EMEA’s fourth-quarter growth rate, however, was its lowest in 2021, and was up only 4 percent versus the third quarter.
“Despite signs of a slowdown last quarter, EMEA appears to be on a solid upward trajectory overall. Combined market ACV has stayed above US $5 billion per quarter since mid-2020, including four consecutive US $6 billion quarters and the latest quarter topping US $7 billion,” said Steve Hall, president of ISG EMEA.
In the fourth quarter, the XaaS market reached a record US $3.6 billion of ACV, up 55 percent over the prior year. IaaS also grew 55 percent, to a record US $2.6 billion, while SaaS jumped 57 percent, to a record US $952 million.
Meanwhile, the managed services market saw some choppiness in the fourth quarter. At US $3.5 billion, ACV was down 16 percent versus the prior year, but up 2 percent over the third quarter. There were 205 contracts awarded in the quarter, up 10 percent over the prior year. Within the segment, ITO was down 19 percent, to US $3 billion, against the prior year, but up 19 percent versus the third quarter. Meanwhile, BPO, at US $499 million, was 2 percent ahead of the prior year, but down 44 percent against the third quarter.
“Managed services posted a fifth consecutive quarter of ACV over US $3.4 billion. While down year over year, it is worth noting the fourth quarter of 2020 included several very large mega-deals,” Hall said. “We are seeing an unprecedented level of sustained contracting activity in EMEA. The past four quarters have each registered at least 200 awards.”
Market Insights: Managed Services
Most of the region’s geographic markets saw sizable annual increases in managed services ACV, except for its two largest markets—the U.K. and DACH (Germany, Austria and Switzerland). France, the Middle East and Eastern Europe all hit record highs for the year.
The U.K. rose moderately for the year, with ACV up 2 percent, to US $3.6 billion, powered by strong growth in all but the third quarter, including two quarters (the second and fourth) with more than US $1 billion of ACV. In the fourth quarter, ACV rose 34 percent, to US $1.2 billion. Application development and maintenance (ADM) ACV rose more than 20 percent for the year, while legacy infrastructure ACV fell by 2 percent.
DACH declined 29 percent, to US $3.0 billion, for the full year. The market remained in positive territory for much of 2021 but turned negative in the fourth quarter (down 70 percent) on a difficult comparison with the fourth quarter of 2020, which saw a number of large awards, including deals with Daimler, Siemens and Postbank. For the year, ACV for ADM was up 14 percent but infrastructure ACV was down more than 70 percent against a difficult prior-year comparison.
“In addition to a difficult compare, DACH was also impacted by supply chain disruptions and a slowdown in global consumer spending, which led to an extension of existing scope and a pause in larger transformation deals,” Hall said.
France posted four straight quarters of year-over-year growth to finish 2021 with a record US $2.2 billion of ACV, up 82 percent. In the fourth quarter, ACV was US $513 million, up 11 percent versus the prior year. For the year, France saw elevated levels of ITO spending, with ACV up more than 70 percent in ADM and 26 percent in infrastructure.
2022 Global Forecast
ISG is forecasting the global market for cloud-based XaaS (IaaS and SaaS) will grow 20 percent, at the lower end of the 20 percent to 25 percent range in recent years, and the global market for managed services will advance 5.1 percent in 2022, well ahead of the 2 percent average annual growth from 2010 through 2020.
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 77 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.
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ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.