Europe’s IT and business services market climbed to a new record high in 2021, but growth slowed in the fourth quarter. This is reported by the current EMEA ISG Index based on the latest figures in the IT services industry. […]
The EMEA ISG Index tracks external contracts with an annual contract Value (ACV) of at least 4.4 million Euros (US$ 5 million). According to him, the total market, which includes both As-a-service (XaaS) services and managed services, reached a record value of 23.3 billion euros in 2021. This corresponds to an increase of 23 percent and is thus the highest annual growth rate ever recorded in Europe.
Managed services increased by 11 percent to 12.2 billion euros, which is the highest value in the last ten years. This includes a record figure of 10 billion euros for IT outsourcing (ITO) with an increase of 5 percent, as well as 2.3 billion euros for business process outsourcing (BPO), which corresponds to a growth of 45 percent. XaaS rose by 41 percent to a record value of 11.1 billion euros, with infrastructure-as-a-Service (IaaS) rising by 44 percent to a record value of 8.1 billion euros and software-as-a-Service (SaaS) by 33 percent to a record value of 3 billion euros.
The record dynamics of the year also includes the fourth quarter. However, the last three months of the year have seen a decline in demand. The total annual contract value (ACV) rose by 9 percent to 6.3 billion euros in the fourth quarter, breaking the $7 billion (6.2 billion euros) mark in one quarter for the first time. Nevertheless, the final quarter recorded the lowest quarterly growth of 2021 and was only 4 percent above the values of the third quarter.
Solid upward trend
“Although the last quarter shows signs of a slowdown, the EMEA region is recording an overall solid upward trend,” says Barbara Florschütz, Managing Director of the Information Services Group (ISG) Germany. “Since mid-2020, the ACV of the overall market has always exceeded 5 billion US dollars (4.4 billion euros) per quarter. It reached at least 6 billion US dollars (5.3 billion euros) four times in a row, while the last quarter even recorded over 7 billion US dollars (6.2 billion euros).“
In the fourth quarter, the XaaS market reached a record ACV value of 3.2 billion euros, an increase of 55 percent compared to the previous year. IaaS also grew by 55 percent to a record value of 2.3 billion euros, while SaaS increased by 57 percent to a record value of 838 million euros.
On the other hand, the managed services market was partly unsettled in the fourth quarter. At EUR 3.1 billion, the ACV was 16 percent lower than in the same quarter of the previous year, but 2 percent higher than in the third quarter of 2021. In the fourth quarter, there were 205 contracts signed, which is 10 percent more than in the same quarter of the previous year. In IT outsourcing (ITO), the contract value decreased by 19 percent compared to the previous year to 2.6 billion euros, but this meant an increase of 19 percent compared to the third quarter of 2021. At EUR 439 million, Business Process Outsourcing (BPO) was 2 percent above the previous year’s figure, but 44 percent below the figure for the third quarter of 2021.
“Managed services recorded an ACV of over 3 billion euros for the fifth consecutive quarter,” says Florschütz. “Although the value has decreased compared to the previous year, it should also be mentioned that several mega deals were concluded in the fourth quarter of 2020. We are currently experiencing an unprecedented level of continuously high contract activity in the EMEA region. In the last four quarters, we recorded at least 200 contracts in each case.“
Results by country: Managed Services
Most of the market regions had a considerable annual growth of the ACV in managed services – with the exception of the two largest markets Great Britain and DACH (Germany, Austria and Switzerland). France, the Middle East and Eastern Europe all reached record levels this year.
The United Kingdom recorded a moderate increase in ACV of 2 percent to 3.2 billion euros in the course of the past year. This is due to strong growth in all quarters, with the exception of the third quarter. The second and fourth quarters had an ACV of more than 1 billion US dollars (0.9 billion euros). In the fourth quarter, the ACV rose by 34 percent to 1.1 billion euros. The ACV in the area of application development and maintenance (ADM) increased by more than 20 percent during the year, while the ACV in the area of existing infrastructure decreased by 2 percent.
In the DACH region, the managed services ACV shrank by 29 percent to 2.6 billion euros in the entire last year. The market recorded positive growth over much of 2021, but turned into a minus in the fourth quarter (minus 70 percent). The reason for this is shown by the comparison with the fourth quarter of 2020, In which a number of very large orders were placed in DACH, including from Daimler, Siemens and Postbank. Apart from this, the ACV for ADM services increased by 14 percent in 2021, and the ACV for infrastructure services decreased by more than 70 percent due to the exceptionally high values of the previous year.
“But it is not only the year-on-year comparison that is difficult for the DACH region,” says Florschütz. “At the same time, DACH suffered from supply chain disruptions and a general slowdown in demand for industrial goods. This often led to an extension of existing contracts, while larger transformation projects were put on hold, at least for the time being.“
France recorded continuous growth for four consecutive quarters year-on-year and ended 2021 with an ACV record of almost 2 billion euros. This corresponds to an increase of 82 percent. In the fourth quarter, the ACV amounted to 452 million euros, an increase of 11 percent compared to the same quarter of the previous year. Throughout 2021, France recorded a consistently rising level of ITO spending. For example, ACV increased by more than 70 percent at ADM and by 26 percent in the infrastructure sector.
Global outlook for 2022
For the global market of cloud-based XaaS (IaaS and SaaS), ISG expects growth of 20 percent. This estimate is at the lower end of the 20 to 25 percent from previous years. According to ISG, the global market for managed services will grow by 5.1 percent in 2022. This is well above the growth of the years 2010 to 2020, which had averaged 2 percent per year.