The EMEA ISG Index™, released on July 14, 2025, reports a 14% year-on-year increase in Europe’s combined IT and business services market, reaching $9.0 billion in annual contract value (ACV) for Q2. Strong demand for AI-driven cloud services fueled a 34% surge in as-a-service (XaaS) ACV, while managed services saw a 4% decline due to macroeconomic and geopolitical uncertainties.
Combined IT market ACV up 14% to $9.0B in Q2 2025.
XaaS ACV grows 34% to $5.1B, driven by AI and cloud demand.
Managed services ACV dips 4% to $3.9B amid cautious spending.
IaaS surges 43% to $3.9B; SaaS grows 12% to $1.2B.
ER&D segment soars 193% to $953M, reflecting digital innovation.
France and Nordics see strong ACV growth; UK declines 41%.
The XaaS segment achieved a record $5.1 billion in ACV, up 34% year-on-year, driven by strong demand for AI-driven cloud solutions. Infrastructure-as-a-service (IaaS) climbed 43% to $3.9 billion, while software-as-a-service (SaaS) grew 12% to $1.2 billion. “Europe continues to embrace the cloud for AI adoption and cost efficiency,” said Steve Hall, president of ISG EMEA and chief AI officer. Sovereign clouds are emerging as a key growth area amid digital sovereignty discussions.
Managed services ACV fell 4% to $3.9 billion, with a 20% drop in contract volume to 240 deals. IT outsourcing (ITO) declined 21% to $2.6 billion, though data center services showed growth. Business process outsourcing (BPO) rose 23% to $667 million, led by customer engagement and finance services. Economic uncertainty led to a 31% decline in smaller deals under $10 million, while three mega-deals (ACV ≥ $100M) saw a 9% ACV increase.
Managed services ACV grew significantly in travel, transportation, and leisure (90%), business services (74%), and retail (10%). However, banking, financial services, and insurance (BFSI) fell 8%. Geographically, the DACH region grew 11% to $1.0 billion, France surged 142% to $817 million, while the UK dropped 41% to $770 million. The Nordics rose 72% to $471 million, reflecting regional variations in sourcing demand.
The engineering, research, and development (ER&D) segment saw a remarkable 193% increase in ACV to $953 million, driven by investments in digital integration and innovation. This growth underscores Europe’s focus on leveraging technology to stay competitive in AI-driven transformation.
For the first half of 2025, combined market ACV rose 19% to $18.2 billion, with XaaS up 35% to $9.9 billion and managed services up 3.4% to $8.3 billion. ISG forecasts 21% XaaS growth for 2025, up 300 basis points, driven by AI demand, while managed services are expected to grow modestly at 1.3%. “AI has emerged as the dominant theme, overcoming many of these concerns to drive the overall market forward,” Hall noted.
Europe’s IT and business services market in Q2 2025 demonstrates resilience, with AI-driven cloud demand powering significant growth. Despite managed services challenges, the region’s focus on digital transformation and sovereign clouds positions it for continued innovation in an AI-centric future.
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, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.
TechIntelPro empowers B2B technology decision-makers with the latest industry trends, deep insights, leadership perspectives and actionable intelligence to drive both organizational and professional milestones—and thrive on the tech pulse.