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Highlights
- Q4 2023 saw a record $28.2 billion in combined IT and business services spending, up 20%.
- Cloud services drove the growth, with a 33% increase to $17.7 billion, fueled by AI adoption.
- ISG forecasts strong growth for cloud services in 2025, despite potential challenges from economic factors.
ISG Index™ has reported that global IT and business services spending reached new heights in Q4 2023, with combined market Annual Contract Value (ACV) increasing by 20% year-over-year to a record $28.2 billion. This impressive growth was primarily driven by cloud services, which saw a remarkable 33% increase to $17.7 billion. The surge in cloud adoption, especially in the wake of AI-driven demand, played a central role in propelling the market to new records.
For the full year 2024, combined market ACV reached a record $104 billion, marking an 11% increase from the previous year. Cloud services, a dominant sector, saw significant growth, reaching $62.4 billion, up 19% from the previous year. Within the cloud segment, Infrastructure as a Service (IaaS) experienced a notable 25% rise, reaching $46.6 billion, while Software as a Service (SaaS) grew by 4.6%, reaching $15.8 billion. Managed services, while still growing, saw a slower pace with a modest 2% increase to $41.7 billion.
ISG’s forecast for 2025 is positive, projecting an 18% growth in cloud services and a more modest 4.5% growth for managed services. The expected growth in cloud services will be driven by ongoing AI adoption and improved enterprise demand. However, the market faces challenges, including restrictive interest rates and economic uncertainties that could impact growth in certain sectors.
Positive Aspects
ISG’s Q4 2023 report highlights impressive growth in both the overall IT and business services market and the cloud services sector in particular. The 20% year-over-year increase in combined market ACV and the 33% jump in cloud services reflect the increasing demand for AI-driven solutions and cloud technologies. IaaS saw a significant 42% surge to $13.4 billion in Q4, underscoring the growing reliance on scalable cloud infrastructure. The full-year 2024 record ACV of $104 billion demonstrates continued market strength, with AI now accounting for 6% of provider revenues, further boosting the sector’s outlook.
Negative Aspects
While cloud services experienced substantial growth, managed services growth slowed to 2.6% in Q4, indicating a shift in enterprise focus toward cloud-based solutions over traditional managed services. IT outsourcing also saw a negligible 0.6% growth in Q4, which may signal a slowing demand for outsourcing contracts. Additionally, the banking and manufacturing sectors continue to face pressure on discretionary spending, which could affect IT spending in these areas. The strong US dollar also poses challenges for multinational corporations, potentially impacting global revenue streams and international contracts.
