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ISG predicts worldwide growth of 17% in XaaS and 5% in managed services in 2023

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cloud services

Information Services Group’s (ISG), a leading global technology research and advisory firm, has released its latest state-of-the-industry report. The industry report findings reveal a decline in cloud services spending across the Asia Pacific region, largely due to turbulence within China’s tech sector. 

In the fourth quarter, Asia Pacific’s Information Services Group Index™ saw a 33% decline in total average contract value (ACV) for managed services and cloud-based anything-as-a-Service (XaaS) to US $3.4 billion. Compared to the third quarter, combined market spending was up by 14%. 

The managed services sector did better than the overall market in the fourth quarter. Compared to the previous quarter, overall managed services spending was up by 76%. 

The value of contracts increased by 21% to US $1.3 billion. The number of contracts signed increased by 52% compared to the same time last year. 

Within managed services, IT outsourcing (ITO) increased by 19% to US $877 million, while business process outsourcing (BPO) went up by 26% to US $437 million 

On the other hand, XaaS spending went down by 48% to US $2.1 billion in the fourth quarter as compared to the previous year. Infrastructure-as-a-service (IaaS) spending was off by 53% to US $1.7 billion, while software-as-a-service (SaaS) spending decreased by 9% to US $412 million. 

In 2022, Asia Pacific’s combined market generated an ACV of $13.8 billion, which is 21% less when compared to 2021. XaaS ACV fell 27.5% to US $10.4 billion, while managed services moved up by 9% to US $3.4 billion. Enterprises signed 273 managed services contracts in 2022, which is an increase of 24% as compared to the previous year. 

Within the XaaS segment, IaaS dropped 31% to $8.8 billion, while SaaS rose 0.1% to $1.6 billion. On the managed services side, ITO increased 4% to $2.4 billion, while BPO climbed 27% reaching $989 million. 

Southeast Asia produced a record US $344 million of ACV in the fourth quarter 

The Australian/New Zealand (ANZ) market generated $1.1 billion in managed services ACV for 2022, which is a 14% decrease from the previous year. Even though the fourth quarter had the strongest ACV of $469 million, it wasn’t enough to make up for the losses from earlier in the year. 

Southeast Asia increased its managed services ACV to $795 million by 74% and had its best quarter ever in the fourth quarter of 2022 with an ACV of $344 million, which is an increase of 46% from the prior year.  

India also increased its managed services ACV by 52% to $612 million and had its best quarter in the fourth quarter of 2022 with an ACV of $205 million, which is double what it was in the prior year. 

Cloud services market in 2023 

For 2023, ISG has projected several upcoming developments in the market which could prove essential for a global economic recovery. The end to interest rate hikes, a decrease in inflation, and supply chains beginning to normalize are reasons for cautious optimism. It is also welcome news that China is beginning to open once more, and the US dollar appears to be coming off its recent highs. Enterprise spending has remarkably remained intact, and many foresee better macroeconomic conditions by the second half of the year.  

XaaS providers have been forced to readdress their strategies in the face of softening demand, downscaling their workforce after experiencing significant hiring over the last few years. In spite of this challenge, ISG is still predicting an ACV growth rate of 17% for XaaS by 2023 – which is less than the previous years.  

In the case of managed services, shifting towards cost optimization will provide a favorable push for this market. ISG forecasts 5% ACV growth for managed services in 2023. 

Read next: Microsoft and AWS named Leaders, Alibaba Cloud and Google named Strong Performers in ‘The Forrester Wave™: Public Cloud Development and Infrastructure Platforms’

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