Europe's IT and Business Services Market Gains Momentum in Q3: ISG Index™

The European IT and business services market demonstrated robust growth in the third quarter, with a record annual contract value (ACV) of US $8.9 billion, a 32% increase from the previous year. This strong performance was driven by significant growth in managed services and as-a-service (XaaS) segments, as reported by the EMEA ISG Index™.

Managed services ACV climbed 35% to US $4.9 billion, boosted by a 22% quarter-over-quarter increase in the third quarter. This growth was primarily attributed to three high-value mega-deals in the DACH region. Excluding these deals, managed services ACV would have still increased by 15%. A record 305 managed services contracts were signed in the quarter, with six mega-deals worth a total of US $1.1 billion in ACV.

The XaaS segment also experienced notable growth, with ACV rising 27% to US $4.04 billion. This marked the first time the region's cloud services spending exceeded US $4 billion in a quarter. The segment grew by double-digits for the second consecutive quarter, fueled by rising interest in generative AI (GenAI).

The strong performance in the IT outsourcing (ITO) and business process outsourcing (BPO) sectors contributed to the overall market growth. ITO rose 32% to US $3.6 billion, driven by double-digit growth in nearly all service lines. BPO soared 46% to US $1.3 billion, fueled by strong growth in engineering, research and development, HR outsourcing, and customer engagement services.

Geographically, the DACH region saw exceptional growth due to three high-value mega-deals, generating US $2 billion of ACV and up 308% versus the prior quarter. France and Benelux also delivered strong quarters, with growth of 60% and 161%, respectively.

ISG maintains its full-year growth forecast, expecting 2% growth for managed services and 14% for XaaS in 2024. The market is poised for stronger growth in 2025, as interest in GenAI continues to drive demand for cloud services and managed services segments.