Spending on technology services in Asia Pacific grew by double digits in the first quarter, powered by AI-driven demand for cloud infrastructure services, while managed services saw modest growth, the latest state-of-the-industry report from Information Services Group (ISG), a global AI-centered technology research and advisory firm, found. The Asia Pacific ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market—both managed services and as-a-service (XaaS)—rose 16 percent versus the prior year, to US $7.1 billion.
Asia Pacific combined technology services market rose 16% to US $7.1 billion, the third double-digit growth quarter in two years.
XaaS spending climbed 18% to a record US $6.3 billion, the fastest growth in two years.
IaaS advanced 19% to a record US $5.6 billion; SaaS increased 15% to a record US $675 million.
Managed services rose 1.9% to US $791 million, breaking a four-quarter losing streak.
ISG AI Index shows IaaS up 160%, SaaS up 53%, and managed services up 0.3% since the start of the current AI era.
ISG raised its full-year XaaS growth forecast to 25%, up 400 basis points from January.
"Asia Pacific continues to be a cloud-first market, with digital transformation and AI fueling demand for infrastructure and software services," said Michael Gale, partner and regional leader, ISG Asia Pacific. "Managed services rebounded this quarter but still has not returned to the $1 billion run-rate that we saw several times in 2024."
Several of the region's smaller industries increased their managed services spending significantly in the first quarter, including transportation, healthcare and business services, which were all up more than 100 percent. Among the larger verticals, banking, financial services and insurance (BFSI) rose 4 percent while manufacturing was flat and telecommunications was down significantly, off 60 percent from the prior year.
By geography, the smaller managed services markets of Southeast Asia, China and Korea were each up by triple digits versus the prior year. However, the larger markets weighed on overall results, with India down 9 percent, Australia-New Zealand down 33 percent and Japan down 54 percent. A total of 61 managed services contracts was awarded in the first quarter, up 7 percent year on year, but down 6 percent against the prior quarter. The number of smaller deals, those between US $5 million and US $9 million, rose 19 percent versus the prior year.
ISG last week announced the launch of its ISG AI Index, a first-of-its-kind benchmark that measures how AI is impacting the global technology and business services sector. The initial findings show that infrastructure-as-a-service (IaaS) has seen the greatest impact from AI, up 160 percent. Software-as-a-service (SaaS) has risen 53 percent while managed services is up only slightly, at 0.3 percent. On a market-weighted basis, the composite ISG AI Index was up 77 percent since inception, dating to December 2022, just after the launch of ChatGPT 3.0 and the start of the current AI era.
ISG said it is raising its full-year forecast for XaaS revenue growth to 25 percent, up 400 basis points from its January forecast, and is holding its managed services growth forecast at 2.1 percent for the year. The forecasts reflect ISG's view that XaaS growth will continue to accelerate on strong demand for AI, while managed services growth will remain "steady" as enterprises focus on cost takeout to fund their AI initiatives. Asia Pacific's XaaS spending has grown at a slower pace than the Americas or EMEA, averaging 13.5 percent a quarter over the last 18 months. Within the managed services segment, IT outsourcing (ITO) slumped 32 percent to US $409 million, business process outsourcing (BPO) fell 14 percent to US $133 million, while engineering services rose to US $249 million, up from US $22 million in the prior year.
About ISG
ISG is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world's top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.
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