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ISG Index: Cloud-Based Services Boost 3Q Asia Pacific Sourcing Market

As-a-service ACV climbs 51%, topping US$1 billion for the second straight quarter

The Asia Pacific sourcing market continues to be bolstered by rising demand for cloud-based as-a-service solutions, with annual contract value for these services topping US$1 billion for the second straight 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.

Data from the Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, show third-quarter as-a-service ACV reached US$1.05 billion, up 51 percent over the prior year and trailing only the record US$1.09 billion set in the second quarter of 2018. Traditional sourcing, meanwhile, turned in its weakest quarter since the first quarter of 2017, with ACV of US$468 million, down 41 percent from the prior year.

Combined ACV for the Asia Pacific sourcing market was US$1.5 billion – the second straight quarter at or above this mark – but up only 2 percent because of traditional sourcing’s drag on results. The region set a quarterly record for combined ACV, at US$1.9 billion, in the second quarter of 2018.

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In the as-a-service segment, demand for both Infrastructure-as-a-Service (IaaS), up 53 percent to US$891 million, and Software-as-a-Service (SaaS), up 42 percent to US$163 million, contributed to the robust third-quarter growth. Traditional sourcing, meanwhile, saw contract volume dip 20 percent from last year; the 39 contracts awarded in the third quarter were the lowest number since the fourth quarter of 2016. Traditional sourcing weakness was spread across all major verticals and every geographic market except for Japan. Even ACV for application development and maintenance (ADM) services was off 8 percent, after two strong quarters to start the year.

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Through the first nine months of 2018, Asia Pacific’s combined market ACV of US$4.8 billion rose 28 percent, the highest level ever for this period. As-a-service sourcing ACV surged 58 percent, to US$3 billion, but after an exceptionally strong first half, traditional sourcing dipped into negative territory for the year, down 3 percent, to US$1.8 billion.

“The Asia Pacific sourcing market continues to be fueled by high demand for cloud-based services, especially in emerging markets where providers see the potential for explosive future growth and are placing big bets on IaaS and SaaS services,” said Lisa Borden, partner and head of ISG Australia and New Zealand (ANZ). “As-a-service now accounts for 63 percent of the region’s combined market, up from 45 percent just two years ago. For many of the big providers, the whole game is about data center build-out to meet the growing demand for IaaS services, while the SaaS market is rising as enterprises continue to move apps to the cloud.”

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