STAMFORD, Conn., Oct. 13, 2016 /PRNewswire/ -- The global sourcing market reached a record $9.5 billion in the third quarter, up 11 percent on steady gains in traditional sourcing and record-high value in the as-a-service segment, according to the 3Q 2016 ISG Index™ released today by Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show traditional sourcing ACV was up 5 percent, to $5.8 billion, while the fast-growing as-a-service segment, propelled by the movement of traditional services to the cloud, jumped 20 percent, to $3.7 billion. Combined market ACV of $9.5 billion was the highest ever for a third quarter since ISG began tracking the impact of as-a-service solutions on the global sourcing industry in 2014.

"Traditional sourcing ACV, though up low- to mid-single digits from the prior quarter and year, fell a bit short of the $6 billion we consider to be a healthy quarter," said John Keppel, president of ISG EMEA and Asia. "The combined market, however, is being bolstered by the record-high value of the as-a-service segment. Overall, we would rate the combined market's third-quarter performance as encouraging, with year-to-date performance boding well for a stronger-than-anticipated 2016."

Growth in the traditional sourcing space during the third quarter was paced by a 27 percent jump in information technology outsourcing (ITO), which generated $4.5 billion in ACV. Business process outsourcing (BPO), meanwhile, declined 34 percent, to $1.3 billion in ACV.

In the as-a-service space, infrastructure-as-service (IaaS) climbed 37 percent, to $2.7 billion in ACV, more than offsetting an 8 percent drop in software-as-service (SaaS), which came in at $1 billion for the quarter.

For the first nine months of 2016, the combined market, with ACV of $28.2 billion, was up 16 percent versus the same period in 2015. Traditional sourcing, with ACV of $17.7 billion, was up 5 percent, fueled by low double-digit growth in ITO, while as-as-service, with ACV of $10.5 billion, was up 41 percent, driven by strong double-digit growth in both IaaS (up 50 percent) and SaaS (up 24 percent).

Americas

The Americas saw its combined third-quarter ACV grow 11 percent, to $4.5 billion – the sixth consecutive quarter the region's combined ACV exceeded $4 billion. Traditional sourcing value, at $2.3 billion, was up 2 percent versus 2015. The as-a-service market continued to surge, up 23 percent over the prior year to reach $2.2 billion in value, nearly equal that of the traditional market. As-a-service growth was fueled mainly by a 43 percent increase in IaaS value.

For the first nine months, the combined market in the Americas reached $13.9 billion, up 21 percent versus 2015, spurred by significant growth in the ITO (up 19 percent) and IaaS (up 59 percent) segments. Overall, the as-a-service market was up 45 percent for the year.

Through three quarters, contract volume in traditional sourcing reached 533 contracts, slightly below the same period last year, but still the second-best performance ever at this point, largely on the strength of the first two quarters. By industry, year-to-date growth was paced by strength in financial services, which reached its highest point in a decade, and by the healthcare and business services segments, the latter of which achieved record ACV for the first nine months.

Europe, Middle East and Africa (EMEA)

The Europe, Middle East and Africa (EMEA) sourcing market appears to be righting itself after a stumble last quarter, with ACV of $3.8 billion, up 10 percent over last year and 22 percent from the second quarter. The traditional and as-a-service segments each contributed proportionately to the growth; the traditional market, with ACV of $2.9 billion, and the as-a-service market, with ACV of $0.9 billion, both were up 10 percent over the prior year.

Year to date, EMEA's combined market ACV was $11.0 billion, up 11 percent, on the strength of 10 percent growth in traditional ITO services, 33 percent growth in IaaS and 20 percent growth in SaaS. Leading industry contributors to the growth included manufacturing, which saw its ACV more than double over a softer 2015, helped by a surge in new contracts. Retail and business services also turned in significant, double-digit ACV growth.

In the traditional sourcing space, volume reached a record 494 contracts through the first nine months, up 13 percent over the same period last year.

Asia Pacific

Asia Pacific continued its recent growth trend, generating $1.2 billion in combined market ACV in the third quarter, up 12 percent over last year, the fifth straight quarter the region's combined ACV has topped the $1 billion mark. The big growth driver was the as-a-service market, which delivered $0.7 billion in quarterly ACV, a record for the region, up 30 percent over the prior year. Underlying that growth was a 39 percent increase in IaaS ACV. Traditional sourcing declined 4 percent, to $0.5 billion, partly due to the uncertainty over elections in Australia, the region's largest single market.

Over the first nine months, the combined market rose 15 percent, to $3.3 billion, with the as-a-service market again accounting for the growth. As-a-service ACV surged 45 percent, fueled by 51 percent growth in IaaS and 25 percent growth in SaaS, while traditional sourcing lagged 6 percent over the prior-year period, despite 19 percent growth in the BPO market, which, supported by several large contracts, achieved its best performance in four years.

In traditional sourcing, contract volume slumped 21 percent, to 95 contracts year to date, the worst such period since 2008, with ITO activity also dropping to its lowest level in the last eight years. By industry, year-to-date leaders included telecom, which saw its ACV rise 13 percent, and manufacturing, whose ACV climbed 21 percent.

Forecast

"Looking ahead, we see a stepped-up pace for digital transformations, with many enterprise buyers adopting a cloud-first strategy, particularly in customer-facing areas that are becoming more intelligent and more mobile," said Keppel. "The market has room for multiple winners among those that combine high functionality and fast-paced innovation within a robust partner ecosystem. Among industries, we'll be watching financial services closely to see what impact the Brexit decision and the low-interest rate environment have on sourcing decisions, particularly in Europe.

"That said, we're revising our forecast upward. Instead of our previous forecast for a somewhat flat market for 2016, we now anticipate gains in the mid-single-digits for traditional sourcing, and gains well above 30 percent in the as-a-service market."

About the ISG Index™

Now in its 56th 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 nearly 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 2016 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 presentation slides, please visit http://www.isg-one.com/web/research-insights/isg-outsourcing-index/.

About Information Services Group

Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience and global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 1,000 employees and operates in 21 countries.

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