Information Services Group (III) Status Update summary

Market trends and performance

• Global technology services and software spending reached a record $32.7 billion in Q3, up 18% year-over-year, driven by AI adoption and cloud-first strategies, with five consecutive quarters of double-digit growth.

• As-a-service (XaaS) market grew nearly 30% year-to-date, now representing 65% of combined market ACV, with IaaS up 33–41% and SaaS up 16–18%, led by hyperscalers and strong EMEA SaaS growth.

• Managed services growth was sluggish overall, up 1.3–1.5% year-to-date, with the Americas up 15–22% but EMEA and Asia-Pacific down 8–26% due to macro uncertainty and delayed decisions.

• Engineering/ER&D services surged, up 36% year-to-date and 59% in Q3, with large providers winning nearly half of awards; BPO remains in long-term decline, down 16–22% year-to-date.

• AI adoption is accelerating, delivering over 30% efficiency gains in software engineering and customer support, but disrupting traditional BPO volumes and driving a shift to technology-led solutions.

Regional and sector insights

• Americas led managed services growth, up 15–22% year-to-date, with strong mega deal activity and a rebound in smaller deals; EMEA and Asia-Pacific saw declines, with EMEA managed services ACV down 8–25% and Asia-Pacific down 26%.

• BFSI sector is recovering, up 8% year-to-date, led by the Americas (+30%), while EMEA remains weak; energy sector had its best quarter ever, up 23% year-to-date.

• Retail and CPG sectors are under pressure, with combined ACV down 18% year-to-date, mainly due to EMEA weakness, though BPO-related cost optimization work is increasing.

• Healthcare, retail/CPG, and business services as-a-service segments all grew over 20% year-to-date, with healthcare up 29% and business services up 36%.

• Energy, healthcare, pharmaceuticals, manufacturing, and BFSI sectors led managed services growth year-to-date.

Policy and pricing developments

• New $100,000 H-1B visa fee is reshaping labor-based delivery, raising costs and accelerating automation, local hiring, and diversified talent models; prevailing wage changes could further impact margins.

• AI-driven automation is leading to new pricing models, with "autonomous level pricing" aligning cost reductions to levels of automation and human oversight, balancing risk and incentives for both buyers and providers.

• Intense competition and AI investments are driving double the historical rate of price declines in IT and ADM resource units, especially in security.