SYDNEY, AUSTRALIA – Asia Pacific, the world’s smallest outsourcing region by contact value, saw the industry’s largest decline in the second quarter, as managed services slumped in response to the COVID-19 pandemic, 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 ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, found the region’s combined market – both managed services and cloud-based as-a-service – fell 24% versus the prior year, to US $1.9 billion, on pandemic concerns as well as a difficult comparison with a record-high second quarter last year.
The market was down across the board, as managed services plummeted 47%, to US $529 million, with a 42% drop in IT outsourcing (ITO), to US $477 million, and 71% tumble in business process outsourcing (BPO), to US $52 million. The decline in as-a-service was less severe, down 9% versus last year, to US $1.4 billion.
Within this segment, infrastructure-as-a-service (IaaS) was down 7%, to US $1.2 billion, while software-as-a-service (SaaS) dropped 23%, to US $165 million. As-a-service, which typically powers growth in this region, had its weakest quarter since the fourth quarter of 2018.
“In Asia Pacific, we have come to expect uneven results throughout the year, given the relative size of the market, with as-a-service keeping the region on a generally upward track. Not this quarter,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific.
“The pandemic took its toll in the region, with the combined market off 16% from the first quarter on slowing deal activity. Even so, there were some notable deals, including Bharti Airtel’s selection of IBM and Red Hat to build its new telco network cloud.”
In the first half, Asia Pacific’s combined market ACV dropped 11% versus the prior year. Managed Services ACV slid 39%, suffering from a lack of large deals. ITO had its weakest first-half ACV since 2010. Within the segment, both applications development and maintenance (ADM) and infrastructure ACV fell precipitously.
ACV for BPO, historically only a small segment in Asia Pacific, plunged 54% for the first half. Managed services ACV was down across all major geographic markets in the first half.
As-a-Service, meanwhile, rose nearly 5% in the first half, but its growth rate slowed from the 27% growth it registered in the 2019 first half. IaaS continued to show strength, although its rate of growth cooled somewhat, while SaaS ACV shrunk by 16%.
“Competition in the IaaS space remains heated as cloud hyperscalers vie for the enterprise market,” Bertsch said. “In the second quarter, the Australian energy producer and retailer AGL signed with Microsoft in an ambitious push to get all of its business systems into the cloud by 2022. Also, AWS worked with Infosys and DXC to help Kmart-Australia prepare to shift its mainframe applications into the AWS cloud.”
ISG is forecasting slight sequential growth for the combined global market in the third and fourth quarters of 2020. For the full year, the firm is projecting the managed services market will be down 7.5%, slightly more than the 7% decline it forecasted for 2020 in the first quarter.
Read more: Pretending to be normal: Attackers misuse legitimate tools in 30% of successful cyber-incidents
Discussion about this post