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Cloud-Based Services Propel European IT, Business Services Market In Q2, ISG Index Finds

As-a-service ACV reaches a record US $2.9 billion, up 41%
Combined market ACV at US $6.3 billion, up 31% versus prior year
Region produces third consecutive quarter with ACV of US $6 billion or more

Growing adoption of cloud-based services is propelling the expansion of the European IT and business services market, with the region setting a new record for as-a-service spending in the second quarter, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq:III), a leading global technology research and advisory firm.

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The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market, which includes both as-a-service and managed services, reached US $6.3 billion, up 31 percent against a soft quarter last year during the onset of the pandemic, and up 4 percent against the first quarter of 2021. It was the third consecutive quarter that combined market ACV exceeded the US $6 billion mark, with this quarter nearly matching the record established in fourth quarter last year.

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Cloud-based as-a-service spending soared 41 percent over last year, and 15 percent from Q1, to a record US $2.9 billion, and now represents 46 percent of the combined market, a record high.

“Europe has traditionally lagged behind other regions in its adoption of cloud-based services but now growth is accelerating,” said Steven Hall, president of ISG EMEA. “COVID-related digital transformation has advanced cloud adoption by three to five years, and as-a-service ACV will soon surpass 50 percent of the market. We are near a tipping point.”

Within the as-a-service segment, infrastructure as-a-service (IaaS) climbed 47 percent (18 percent quarter over quarter), to a record US $2.2 billion, while software-as-a-service (SaaS) rose 27 percent (5 percent quarter over quarter), to a record US $722 million.

Managed services, at US $3.4 billion, was down 4 percent quarter over quarter, its second straight quarterly decline, although it was up 23 percent over a soft Q2 a year ago. Deal activity for the quarter was at a record 217 contracts, amid a flurry of mid-range deals between US $20 million and US $40 million. IT outsourcing (ITO) generated US $2.8 billion of ACV, up 18 percent, and business process outsourcing (BPO) produced US $611 million of ACV, up 54 percent.

For the first half of 2021, the combined market generated a record US $12.3 billion of ACV, up 25 percent. As-a-service, at a record US $5.4 billion, was up 27 percent, and managed services, at a record US $6.9 billion, was up 23 percent. Within as-a-service, IaaS reached a record US $4.0 billion, up 33 percent, and SaaS hit a record US $1.4 billion, up 13 percent. On the managed services side, ITO was at a record US $5.8 billion, up 18 percent, on a record 353 transactions, with strength in ADM and infrastructure. BPO reached US $1.1 billion, up 60 percent, spurred by demand for finance and accounting and engineering services.

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