Morgan Lewis - Tech & SourcingInformation Services Group (ISG) reported that the global outsourcing industry is slowly recovering from the industry’s dip in performance during the second quarter of 2020 due to the coronavirus (COVID-19). Data measuring commercial outsourcing contracts with annual contract values (ACV) of $5 million or more show that third-quarter ACV for the global market rose 3% to $14.6 billion.

Although ACV for managed services is down 5% versus 2019, third-quarter managed services ACV was up 10% over the second quarter, to $6.6 billion. This increase was driven by megadeals (those exceeding $100 million annually), contract restructurings, and strong showings in the banking industry. The ACV of cloud-based services advanced 10.5% over 2019, to $8.0 billion, due to strong demand for infrastructure as a service (IaaS) as businesses accelerate their digital transformations and shift more work to the cloud in response to COVID-19.

Despite the slowdown in the second quarter, for the first nine months of 2020, the global combined market generated ACV of $43.9 billion, up more than 4% versus 2019. The biggest increase came from IaaS, up nearly 20%, to $17.8 billon. Along with software as a service (SaaS), up 3%, to $6.6 billion, total as-a-service ACV through the first three quarters of 2020 was $24.4 billion, up nearly 15%.

ISG predicts that IaaS will continue to drive recovery, as increased use of videoconferencing and remote learning due to COVID-19 will likely continue. “COVID-19 remains an ongoing concern, but enterprises have shifted to virtual models that have pushed the acceleration of digital transformation,” said Steve Hall, president of ISG. “We are not seeing a V-shaped recovery, but transaction volume is robust even as some clients continue to delay decisions and sales cycles are lengthened.”

View the 3Q 2020 Global ISG Outsourcing Index >

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