Spending on cloud-based services reached a record 85 percent of the Asia Pacific technology and business services market in the first quarter, as demand for IaaS and SaaS services rose by double digits even as demand for traditional managed services slumped, 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 Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows the region generated US $2.6 billion in combined-market ACV in the first quarter, up 11 percent over the prior year, but down 9 percent from a record high in the fourth quarter.
Growth was propelled by the as-a-service segment, which rose 22 percent year on year, to US $2.2 billion, on strength in both infrastructure-as-a-service (IaaS), up 24 percent, to US $1.9 billion, and software-as-a-service (SaaS), up 12 percent, to US $292 million.
Meanwhile, managed services slumped 25 percent from the prior year, to $390 million, as IT outsourcing (ITO) slid 36 percent, to US $282 million, offsetting 29 percent growth in business process outsourcing (BPO), to US $108 million.
Managed services grew overall in China, Japan and South Korea, but fell 19 percent in the region’s largest market, Australia/New Zealand (ANZ). Contract activity was at its lowest level in five years and large deals have all but disappeared. In the past 18 months, Asia Pacific has had only seven deals over US $40 million.
“The Asia Pacific market continues to be driven by demand for cloud-based services,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific. “On the managed services side, the market for traditional ITO services is struggling, especially infrastructure, while the much smaller BPO segment typically produces uneven results quarter to quarter. Meantime, we are seeing an escalating battle for market share among the hyperscalers, particularly in the financial services sector.”
Among the notable hyperscaler agreements in financial services during the first quarter, ANZ-based financial services company AMP announced it will migrate all its on-premises workload to Amazon Web Services cloud by 2022, while Kyobo Life Insurance in South Korea announced it will transfer its big data system to AWS. Microsoft, meanwhile, signed an agreement with Bank of New Zealand to migrate a thousand applications to Azure in a project dubbed M1K.
In the SaaS space, significant deals included Kawasaki Engines signing with Salesforce for its manufacturing cloud, and PUMA India, an arm of the Germany-based athletic and casual footwear and apparel maker, leveraging Salesforce’s commerce cloud to improve online user experience. New Zealand’s Zespri International, the world’s largest marketer of kiwifruit, signed to become one of the first SAP customers in the region to use the SAP S/4HANA private cloud edition. BHP, meanwhile, is using Microsoft Dynamics to keep rural Australia mining employees safe.
Within the ITO segment, two application development and maintenance (ADM) awards stood out: Accenture will implement a cloud-based system for Shiseido, the Japan-based cosmetic and personal care multinational, and Mitsubishi Motors extended its IT infrastructure contract with IBM Japan for another five years.
ISG is forecasting the market for cloud-based services (IaaS and SaaS) will grow 18 percent globally in 2021, down slightly from its 20 percent forecast at the start of the year. ISG, meanwhile, has raised its growth forecast for managed services to 5 percent, up from 3 percent at the start of the year.
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 74 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations. For more, visit this webpage.
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 more than 75 of the world’s top 100 enterprises, 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; 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 digital-ready 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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