Last week ISG released its 3Q21 deal index, which has shown significant quarter-on-quarter growth some quick takeaways from this quarter’s index:
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Total ACVs: Annual contracting value (ACV) rose to $21.8 billion a 40% YoY growth – the highest since 2014
- Driven by a robust demand environment from a structural shift in the market as enterprise customers accelerate their digital transformation, modernization, and move to the cloud.
- ACV for Managed services grew 22% Y-o-Y accounting for most awards as well as mega-deals; with the surge in cloud demand as-a-service ACV increased to 13.4 billion, registering a growth of 55% Y-o-Y (the highest quarterly growth rate ever, topping the previous high of 50% in the 1Q16)
- ACV by Functions: ACV witnessed growth across functions with on a YTD basis, with growth in IaaS ACV reaching $25 billion – registering the highest YTD growth of 36% YTD growth which is the best since 2018
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ACV by Geography:
- Americas – Combined Market ACV was up 37% Y-o-Y reaching $11.6 billion – crossing the $11B for the first time; 282 contracts awarded highest ever in a quarter; Five mega-deals awarded – most since 3Q17
- Asia Pacific – Combined Market ACV grew to $3.64 increasing 60% Y-o-Y, for the second consecutive quarter
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- EMEA – Combined Market ACV up 30% Y-o-Y and has remained in a tight range just above $6 billion per quarter this for the year
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Vertical Award Trends:
- Financial Services reported the highest ACV of $12.2 billion followed by Manufacturing at $9.8 billion.
- Retail & Consumer Packaged Goods reported the highest YTD growth of 38% followed by Travel, Transport and Leisure at 31%.
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2021 Forecast – Upgraded this quarter:
- Managed Services ACV is expected to grow 10.1% Y-o-Y in CY21 – 110 bps higher compared to the 2Q21 forecast of 9% Y-o-Y
- As-a-Service ACV is expected to grow 25% Y-o-Y in CY21- 300 bps higher compared to the 2Q21 forecast of 22% Y-o-Y).
- Overall, the ADM market is expected to stay robust, traditional infrastructure outsourcing business to continue to see decline while the Engineering services market is witnessing a change in the overall landscape with the ACV being on the rise with triple-digit growth.
In the words of Steve Hall, President ISG: “Our outlook for the technology and business services market remains bullish, with the volume of managed services deals in the pipeline indicating strong buying intentions among enterprises seeking digital transformation partners. The market is no longer dependent on larger deals and the smaller deals, we believe, will eventually grow into larger engagements as transformation efforts continue to pick up steam. One headwind for this sector is the Great Resignation, which has increased industry attrition and could slow growth. We believe the as-a-service market is in the early phase of its maturity cycle. One near-term headwind is inflationary pressures. If providers can successfully navigate potential price increases with their client base or alter the pricing model to another construct, such as outcomes-based pricing, the multiyear secular growth drivers should remain quite healthy.”
To know more how the key metrics played out for the top three Indian IT companies which reported combined revenue of over $50 billion this quarter in my blog “Strong Demand Continues to Drive Growth in 2QFY22, Margins Start Feeling the Pressure”.
Happy Reading!!
