Digital disrupts traditional outsourcing market in 2016
The traditional IT and business process outsourcing market declined 25 percent in the fourth quarter of 2016 compared to the same period last year, producing a total of $9.6 billion in total contract value, according to data from Information Services Group (ISG). The value of traditional infrastructure, applications, and business process deals in the fourth quarter was down eight percent over the previous quarter, according to ISG.
“These results, we believe, reflect uneven global demand,” says John Keppel, partner and president of North EMEA and Asia for ISG. “The traditional sourcing sector is in the midst of a structural change, as more and more services move to the cloud and many service providers try to adapt their business and sales models to meet these changing market conditions.”
A “healthy” quarter produces around $6 billion in total annual contract value, according to ISG, which includes commercial outsourcing contracts with annual contract value of $5 million or more in its quarter index. Since the beginning of 2011, the global sourcing market had regularly surpassed that benchmark. However, the traditional sourcing market has now delivered three consecutive quarters of less than $6 billion. “The last time that happened was back in 2009,” Keppel says, “when the global economy was in the midst of a recession.”
For the full year, the value of 2016 traditional outsourcing deals fell four percent over 2014, largely attributable to the weaker fourth quarter.
However, the full-year combined annual contract value of outsourcing deals, which now includes cloud computing deals, hit $37.4 billion, up nine percent over the prior year. As-a-service contracts, which include both Software- and Infrastructure-as-a-Service options, now represents nearly 40 percent of global annual contract value in IT services, according to ISG. As-a-service deals set more records for the year, gaining 38 percent for the year.
