Global IT, BPO spending drops 8% in Q1

Global spending on IT and business process outsourcing (BPO) services dropped by 8% in the first quarter of 2023, according to research by Information Services Group (ISG).

The data showed that $24bn was spent on IT and BPO during the period, with cloud services being the most impacted. Spending on cloud-based as-a-service offerings during Q1 was $14.3bn, down 13% from the same period in 2022. Traditional IT services, or managed services, increased by 1% to $9bn.

The findings also revealed that there were 703 managed services contracts signed during Q1, with eight deals valued at over $100m per year, and 237 restructured contracts worth a record $4bn.

ISG President Steve Hall said the results reflect “a tale of two markets,” with the managed services sector recording a record-high actual contract value, while cloud services have seen their growth slow considerably as organisations look to optimise existing workloads in response to the uncertain economic environment.

IT outsourcing spending increased by 7% to £6.8bn, driven by growth in application development and maintenance services. BPO spending during the quarter was $3bn, a 10% drop against a record first quarter in 2022.

According to the ISG research, cloud services spending has now fallen four quarters in a row after reaching its peak in Q1 2022. Infrastructure-as-a-Service (IaaS) spending dropped 16% to $10bn in the first three months of 2023, while Software-as-a-Service (SaaS) spending was down 4% to $3.9bn.

Hall said enterprises are focusing on optimising their existing cloud-based services rather than adding new workloads to the cloud. He also noted that large cloud suppliers are being forced to cut costs as demand for their services slows.

Hall said the decline in cloud contracts is expected to continue through Q2, with demand picking up again in the second half of the year. “The macro environment remains uncertain, with interest rates, inflation and trouble in the banking sector topping concerns for enterprise clients,” he said. “There continues to be more scrutiny on deal signings, especially in discretionary spending areas. Enterprises are revisiting cost optimisation, efficiency gains and vendor consolidation deals.” –

Leave a Comment