STAMFORD, Conn., Oct. 11, 2017 /PRNewswire/ -- Accelerating cloud migration is fueling record-breaking demand for as-a-service solutions, lifting the entire global sourcing market in the third 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.

The ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows record-breaking ACV of $4.7 billion for as-a-service sourcing in the third quarter, up 43 percent over the prior year. That performance was enough to lift the global market by 16 percent, to $10.7 billion, even with only modest 2 percent growth in traditional sourcing, which registered $6.0 billion in ACV for the quarter.

"We see the digital backbone as the driver of enterprise growth, and with it, that of the global sourcing industry," said Steve Hall, partner and global leader, ISG Index™. "Companies continue to migrate workloads to the cloud, which opens up new opportunities in the development of IT infrastructure and ongoing investment in digital products and services. This quarter, the rapid growth of Infrastructure-as-a-Service, or IaaS, particularly in the U.S., ignited the overall sourcing market."

Globally, third-quarter ACV for IaaS reached $3.5 billion, up 47 percent. For the first nine months of 2017, the commercial market for IaaS was valued at a record $9.7 billion annually, up 58 percent over the prior year and up 114 percent over the same period in 2015. Software-as-a-Service (SaaS) also reached a record for the first nine months, with ACV of $3.3 billion, up 7 percent over 2016.

With a flurry of deal activity, especially in the applications space, Information Technology Outsourcing (ITO) rose 7 percent, to $14.5 billion, in the first nine months, powering the traditional sourcing market. There were a record 954 ITO deals signed during this period, up 8 percent overall and including a 19 percent increase in the number of Application Development and Maintenance (ADM) contracts. Business Process Outsourcing (BPO), meanwhile, declined 18 percent, to $3.8 billion, for the first nine months, as deal levels fell to a low not seen since 2009.

Americas

The Americas rebounded from a sluggish second quarter to post record ACV of $6.3 billion in the third quarter, up 45 percent over the prior year. Both traditional sourcing, with ACV of $3.5 billion, up 47 percent, and as-a-service sourcing, with ACV of $2.8 billion, up 43 percent, contributed to the record-breaking quarter. The growth in traditional sourcing was fueled by five mega relationships (contracts valued at more than $100 million annually) and robust contracting activity overall.

For the first nine months, Americas combined ACV reached $16.3 billion, up 20 percent over the prior-year period, paced by all-time highs in both traditional and as-a-service ACV. Combined ACV consisted of $8.7 billion in traditional sourcing (up 9 percent), including a record $7.0 billion in ITO ACV (up 16 percent), along with a record $7.6 billion in as-a-service sourcing ACV (up 37 percent). On the as-a-service side, both IaaS (ACV of $5.5 billion, up 57 percent) and SaaS (ACV of $2.1 billion, up 3 percent) continued to set new records.

ACV in financial services, the region's top industry for sourcing services, reached a record $3.7 billion, up 26 percent overall for the first nine months, and up 45 percent in the as-a-service space. Manufacturing, previously lagging, continues its reversal in fortune, with ACV of $3.0 billion, up 64 percent year to date. Smaller verticals, such as travel and transportation (ACV up 65 percent) and consumer packaged goods (ACV up 21 percent) also performed well over the first nine months.

Europe, Middle East and Africa (EMEA)

After a robust first quarter, EMEA continued its two-quarter swoon in the third quarter, driven by a falloff in traditional sourcing, upon which this region is more dependent than others. Combined ACV of $2.9 billion (down 23 percent) was the lowest since ISG began tracking both the traditional and as-service markets at the start of 2014. Even a record performance by the as-a-service market (ACV of $1.2 billion, up 48 percent) could not offset the 43 percent decline in traditional sourcing.

Over the first nine months, the picture is not as bleak. Combined ACV of $11.3 billion was up 3 percent, fueled by a 51 percent increase in the as-a-service market, to $3.4 billion, which helped offset a 9 percent decline in traditional sourcing, to $7.9 billion. ITO, despite a record number of contracts, saw its ACV decline 6 percent, to $6.2 billion, while IaaS (ACV of $2.6 billion, up 69 percent) and SaaS (ACV of $800 million, up 12 percent) both climbed to new highs.

Financial services, EMEA's largest sourcing industry, generated ACV of $3.2 billion year to date, up 24 percent. Among other verticals, the year-to-date performance of business services (ACV of $1.1 billion, up 25 percent), energy (ACV of $1.5 billion, up 12 percent) and consumer packaged goods (ACV of $542 million, up 41 percent) stood out.

Asia Pacific

Asia Pacific soared to a record $1.5 billion in combined ACV in the third quarter, up 43 percent, propelled by a record as-a-service market (ACV of $689 million, up 37 percent) and a traditional market ($783 million, up 49 percent) that was at its highest level since the second quarter of 2014.

For the first nine months, combined ACV rose 25 percent, to $3.7 billion, with the as-a-service market climbing 39 percent, to a record $1.9 billion, and the traditional market advancing 13 percent, to $1.8 billion. As-a-service sourcing was fueled by a robust IaaS market ($1.6 billion, up 44 percent), while traditional sourcing was paced by ITO spending of $1.4 billion, up 32 percent.

By industry, financial services (ACV of $807 million, up 47 percent), business services (ACV of $675 million, up 32 percent) and manufacturing (ACV of $637 million, up 20 percent) were among the year-to-date growth leaders.

Forecast

"Given the continuing broad adoption of digital technologies and ongoing migration to the public cloud, we forecast 20 percent-plus growth in the as-a-service market through 2018. In the traditional sourcing space, we forecast 2.5 percent growth in 2018," said Hall.

About the ISG Index™

Now in its 60th consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media. For the last 15 years, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance.

The 3Q 2017 Global ISG Index™ was presented during a conference call and webcast for media and analysts today. To listen to an audio replay of the call and view the presentation slides and infographic, please visit http://www.isg-one.com/research/research-detail-page/isg-index.

About ISG

ISG (Information Services Group) (NASDAQ: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including 75 of the top 100 enterprises in the world, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry's most comprehensive marketplace data. For more information, visit www.isg-one.com.

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SOURCE Information Services Group, Inc.