Cloud Services Propel Market Growth: IT Spending Reaches New Heights in Q4

Managed Services Experience Slower Growth This Quarter

Record Year for Combined Market ACV: $104 Billion

ISG Projects Strong Growth for XaaS and Managed Services by 2025

Global investment in IT and business services surged in the fourth quarter, largely due to heightened cloud demand spurred by artificial intelligence advancements. This finding comes from the latest report by Information Services Group (ISG) III, a prominent technology research and advisory firm.

According to the ISG Index™, which tracks commercial outsourcing contracts valued at $5 million or more, the combined global market’s annual contract value (ACV) reached an unprecedented $28.2 billion in Q4, marking a 20 percent increase from last year. This represents the fourth consecutive quarter of year-over-year growth and the second quarter in a row to set a new ACV record.

A significant rise in cloud investments fueled this market expansion, with cloud services driving a remarkable 33 percent increase in ACV, totaling $17.7 billion. Within cloud services, infrastructure-as-a-service (IaaS) leaped 42 percent to $13.4 billion, while software-as-a-service (SaaS) rose 12 percent to reach $4.3 billion.

“Cloud service demand continued to grow, a notable shift from the downturn experienced in 2023,” stated Steve Hall, ISG’s president and chief AI officer. He added, “Enterprises are ramping up their cloud migrations to support AI initiatives, benefiting major hyperscalers and their partners, who are developing numerous AI applications on these platforms. Currently, AI contributes to roughly 6 percent of provider revenues and is expected to rise.”

On the other hand, managed services reported a slower growth rate of just 2.6 percent in Q4, bringing its ACV to $10.5 billion. This trend reflects a 3 percent decline compared to the previous quarter. Within managed services, IT outsourcing (ITO) remained nearly unchanged at $7.9 billion (up 0.6 percent), while business process outsourcing (BPO) grew by 9 percent to $2.6 billion.

In Q4, a total of 715 managed services contracts were awarded, up 6 percent year-over-year. This included 10 mega-deals—contracts with an ACV of $100 million or more—aggregating $1.7 billion, which is a 31 percent increase from last year. This marked a historic achievement as it was the first interval since 2007-2008 where the market generated at least 10 mega-deals for three consecutive quarters.

Additionally, contracts valued between $5 million and $10 million also saw a 14 percent rise.

Full-Year Results

The combined market ACV for the full year reached a record $104 billion, representing an 11 percent growth compared to the previous year.

The ACV of cloud services attained an all-time high of $62.4 billion, increasing by 19 percent, with IaaS expanding 25 percent to $46.6 billion and SaaS improving 4.6 percent to $15.8 billion.

In contrast, managed services ACV rose only slightly—less than 2 percent—to a record $41.7 billion, as demand slowed following averages of 6 percent growth in the preceding two years. ITO remained stable at $30.6 billion, while BPO grew by 6 percent to reach $11 billion.

Throughout 2024, 2,868 managed services contracts were awarded, nearly a 5 percent increase from the prior year, including 34 mega-deals, one fewer than in 2023. Notably, new-scope awards totaled 1,926 with an ACV of $27 billion, both metrics up 6 percent and marking a record high for new-scope ACV.

“Managed services bookings experienced slower growth in 2024 compared to the previous two years due to ongoing pressure on discretionary spending, particularly in banking and manufacturing, sectors that constitute almost half of market contract value,” noted Hall. He added, “However, this cost pressure has led to strong mega-deal activity as companies sought large-scale transformations to improve their cost efficiency.”

Hall indicated that enterprise decision-making improved in the latter half of 2024, as the number of smaller contracts in the $5 to $9 million range increased. “This could suggest that discretionary spending may be starting to ease up.”

2025 Forecast

ISG anticipates 4.5 percent revenue growth for managed services and 18 percent growth for cloud-based services (XaaS) in 2025.

“Looking ahead, we expect a gradual recovery in enterprise demand for IT and business services,” Hall said. He based this outlook on expectations that the U.S. Federal Reserve will maintain restrictive interest rates, with at least two rate cuts anticipated, although a strong U.S. dollar continues to be challenging for multinational companies. European growth is expected to be subdued, particularly with upcoming elections in Germany adding to market uncertainty.

“On the positive side, there are several macroeconomic influences at play,” Hall continued. “AI investment is gaining traction, with businesses spending hundreds of billions on infrastructure, paving the way for larger adoption among enterprises. The productivity benefits from AI may present significant opportunities. In managed services, we are starting to observe improvement signs in the banking, financial services, and insurance sectors as discretionary spending begins to recover. Overall market demand could strengthen due to increased clarity surrounding interest rate cuts, enterprises confronting their growing technical debts, and a surge in demand for Generative AI.”

About the ISG Index™

The ISG Index™ serves as a trusted source for insights on the global technology and business services industry. For 89 consecutive quarters, it has provided critical data and trends to financial analysts, enterprise buyers, service providers, legal and educational institutions, and the media.

The results for the 4Q24 Global ISG Index were released during a webcast. To view a replay or download the presentation slides, visit this webpage.

About ISG

ISG (Information Services Group) III is a leading technology research and advisory firm, partnering with over 900 clients, including more than 75 of the world’s top 100 enterprises. ISG focuses on assisting organizations—both private and public sectors—in achieving operational excellence and rapid growth. Key areas include digital transformation, AI, cloud solutions, sourcing advisory, governance and risk management, network services, strategic design, change management, and market intelligence. Founded in 2006 and headquartered in Stamford, Connecticut, ISG has a workforce of over 1,600 professionals across over 20 countries, noted for their innovative thinking and deep industry expertise. For more information, visit www.isg-one.com.

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Press Contacts:



Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com



Julianna Sheridan, Matter Communications for ISG

+1 978-518-4520

isg@matternow.com