Asia Pacific Cloud Spend Rebounds in Q4, ISG Index™ Finds

XaaS spending in Q4 up 10% vs. prior year, while managed services fell 34%

ISG forecasts 15% XaaS revenue growth and 4.25% managed services growth globally in 2024

SYDNEY–(BUSINESS WIRE)–$III #AsaService–Spending on cloud services in Asia Pacific rose in the fourth quarter, making it the only region to see both year-on-year and sequential quarterly growth in this segment, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows total as-a-service (XaaS) spending rose 10 percent year on year and 2 percent sequentially, to US $3.6 billion. Within this segment, infrastructure-as-a-service (IaaS) ACV advanced 9 percent versus the prior year, to US $3.2 billion, while software-as-a-service (SaaS) climbed 18 percent, to $443 million.

The picture for managed services was not as rosy. Fourth-quarter ACV for managed services dropped 34 percent year on year, to US $885 million, against a difficult comparison with a strong prior-year quarter. IT outsourcing (ITO) was down 24 percent, to US $684 million, while business process outsourcing (BPO) was off 53 percent, to US $202 million.

As a result, Asia Pacific’s combined market (both XaaS and managed services) was down 3 percent, to $4.5 billion, in the fourth quarter versus the prior year – the sixth straight quarter of declining year-on-year results.

“The rebound in cloud spending is a welcome sign for the Asia Pacific market,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Combined market spending was up more than 7 percent sequentially from the third quarter, the best quarter-over-quarter growth rate in the last two years, led by 36 percent sequential growth in managed services. This could be an early sign that the Asia Pacific market has bottomed out and is poised for a rebound in 2024.”

From a global perspective, Gale noted that inflation is cooling rapidly and central banks are planning interest rate cuts. “That should create a more friendly environment for enterprise spending and capital deployment in 2024,” he said. Gale also pointed to the positive impact AI will have on the market in the coming years. “As AI technology matures and new use cases are identified, it will have a massive impact on the IT and business services and software industries.”

Full-Year Results

For the full year, Asia Pacific’s combined market generated ACV of US $17.7 billion, down 9 percent versus the prior year, the first time since 2015 the combined market fell into negative territory.

Managed services ACV, at US $3.5 billion, was up 1.5 percent, its highest full-year ACV since 2012. The segment was led by 13 percent growth in ITO, to US $2.8 billion, fueled by strong demand for application services, even as BPO slid 27 percent, to US $755 million. Spending declined in most industry verticals, with the exception of manufacturing (up 85 percent) and telco (up 13 percent). Financial services spending was down 26 percent. A total of 222 managed services contracts were signed in 2023, down 20 percent from the prior year.

The XaaS segment declined 11 percent, to US $14.2 billion of ACV, the first time this market declined for a full year. IaaS was down 12 percent, to US $12.6 billion, while SaaS dropped 10 percent, to US $1.6 billion. The XaaS segment accounted for 80 percent of the combined market in 2023, down from 82 percent in the prior year.

Geographic Performance

For the full year, Australia/New Zealand (ANZ) generated US $1.2 billion of managed services ACV, up 5 percent versus the prior year. India also generated US $1.2 billion of ACV, up 87 percent, to eclipse ANZ as the region’s largest geographic market for ACV in 2023. Among other notable markets, Japan was down 29 percent and Southeast Asia was down 51 percent.

2024 Forecast

ISG is forecasting 4.25 percent growth for managed services and 15 percent revenue growth for XaaS in 2024.

“We expect spending for application modernization and business transformation projects to continue at high levels in 2024, and for GenAI to be a strong contributor to growth. Public cloud spending also should accelerate as optimizations phase out. We also expect small discretionary deals to recover, as well as financial services industry spending to rebound,” Gale said.

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 85 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.

The 4Q23 Global ISG Index results were presented during a webcast on January 18. To view a replay of the webcast and download presentation slides, visit this webpage.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 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 1,600 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.

Contacts

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