Americas IT and Business Services Industry Sees Continuing Decline in Q1

ISG Index

Roiled by economic uncertainty, the Americas market for IT and business services was down in the first quarter, extending the region’s year-over-year decline to five straight quarters, 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 Americas ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows first-quarter ACV for the combined market—including both managed services and cloud-based as-a-service (XaaS)—was $12.1 billion, down 3 percent from a year ago. The rate of decline in Q1 slowed compared with the average 5.4 percent decline over the last five quarters. Versus the fourth quarter of 2023, the combined market was up 2 percent.

“The Americas continues to be impacted by economic and geopolitical concerns, extending a market downturn here that began in early 2022,” said Todd Lavieri, vice chairman and president of ISG Americas and Asia Pacific. “The widespread expansion of generative AI in the fall of 2023 also put a chill on large-scale investments as clients worked through potential strategic opportunities, while balancing those opportunities with current needs. Amid the uncertainty, enterprises remain focused on optimizing their existing investments across their IT portfolio. We saw discretionary projects being delayed and spending on those projects being stretched out in Q1.”

Lavieri said ISG expects the market for IT and business services to improve in 2024. “We are cautiously optimistic that companies will increase their spending on IT and business services later this year. Investments in cloud computing are starting to grow again, partially due to rising interest in generative AI and the data needed to train the large language models that support this powerful new technology.”

Q1 Results by Segment

The managed services segment generated first-quarter ACV of $5.1 billion, down 8 percent from the prior year and down 7 percent from the prior quarter. Contract volume rose 2 percent, to 367 contracts, the third highest quarterly volume ever for the Americas. Two mega deals (contracts with ACV of $100 million or more) were awarded in the quarter, the lowest number since the third quarter of 2022.

The ACV of both new scope (down 9 percent) and restructured contracts (down 5 percent) fell this quarter, while the number of smaller contracts (those with ACV of $30 million or less) rose 2.5 percent, bucking a downward trend in other regions.