Markets that grew 14% in the second quarter based on 34% growth in XAAS
Businesses manage 4% management services to limit discretionary spending
London, July 14, 2025– (Business Wire) – According to the latest industrial report from the latest industry report (NASDAQ: III) from Information Services Group (ISG) (NASDAQ: III), despite slowing demand for managed services due to the weight of macro uncertainty, strong interest in AI continued to drive the growth of cloud services in the second quarter.
EMEA ISG Index™, which measures commercial outsourcing agreements with annual contract value (ACVs) of over USD 5 million, marks the second quarter ACV for the total market (both managed services and cloud-based AS-A-Service) to USD 9 billion. Economic and geopolitical concerns have led to a sequential decline in total markets by 1.2% from the first quarter, as discretionary expenditures on management services are limited.
“Europe continues to embrace the cloud for AI adoption and cost-effectiveness,” said Steve Hall, the ISG EMEA and the company's chief AI executive. “There has been a lot of debate about European digital sovereignty given the region's macroeconomic and geopolitical instability. We consider the sovereignty cloud to be a potential growth segment for the industry going forward.”
Second Quarter Results by Segment
ACV in the AS-A-Service (XAAS) segment has skyrocketed to a record 34% annually to a record USD 5.1 billion, up 7% from the first quarter. XAAS was the fifth quarter, growing in double digits, with an average increase of 31% over that period, but easing slightly from Q1 (down 170 basis points).
Within this segment, Infrastructure Assurer (IAAS) recorded a record 43% per year, reaching a record USD 3.9 billion, up 13% from the first quarter. Software-as-a-Service (SAAS) rose 12% year-on-year to US$1.2 billion, but fell 7%.
Managed Services ACV in the second quarter fell 4% to US$3.9 billion, down 11% from the first quarter. A total of 240 managed services contracts were awarded in the quarter, down 20% from the previous year and 14% from the first quarter. Among them were three mega-trading (ACV of over USD 100 million) compared to four signed in the second quarter of the previous year. Still, the total ACV for Mega trading increased 9% year-on-year as companies continued to emphasize cost optimization aimed at larger transactions. As Enterprise limits discretionary projects, the volume of small transactions under US$10 million fell 31% year-on-year.
Within managed services, IT Outsourcing (ITO) lowers 21% to USD 2.6 billion, with data center services being the only area of growth. Meanwhile, business process outsourcing (BPO) rose 23% to USD 667 million, leading growth in customer engagement, facility management, financial and accounting services.
In the industry, Managed Services ACV was highly in travel, transportation, leisure (up 90%), business services (up 74%), and retail (up 10%), while three largest sectors in the region showed mixed results. Energy and manufacturing rose 4% and 3% respectively, while Banking, Financial Services and Insurance (BFSI) fell 8% in Europe's largest procurement industry.
Meanwhile, ACV in the Engineering, Research and Development (ER&D) segment reached US$953 million, an increase of 193% year-on-year and 64% from the first quarter as companies invested in digital integration and innovation.
Geographical Performance
The DACH region, the largest managed services market in EMEA, rose 11% year-on-year to US$1 billion, with France at ACV number two, up 142% from the previous year. Traditionally Europe's largest procurement market, the UK fell to third place at US$770 million, down 41% from the previous year. Northern Europe, which came in fourth, rose 72% to ACV US$471 million.
First half results
The total market ACV for the first half rose 19% to US$18.2 billion. Managed Services increased 3.4% to US$8.3 billion, while XAAS rose 35% from the same period last year. A total of 518 managed services contracts were awarded, even in the previous year, at a half, down 11% from last year, including six megadeals. However, Megadeal's total ACV rose 10% year-on-year.
Within managed services, Ito was essentially flat (up 0.2%) at US$6.1 billion, while BPO fell 16% to US$1.2 billion. On the cloud side, the IAAS market grew 41% to US$7.4 billion, and the SaaS market rose 20% to US$2.5 billion.
ER&D Services has more than doubled from the previous year to an ACV of $953 million.
2025 Global Forecast
ISG maintains forecasts for a 1.3% revenue growth rate for managed services for the full year, reflecting not only a stabilizing tariff environment, but also the continued weakness of discretionary spending. At the same time, ISG is increasing its previous growth forecast for cloud-based XAA to 21% at 300 basis points, based on strong demand for AI-driven conversions.
Hall commented: “While it has improved in the last 90 days from a macro outlook perspective, business uncertainty remains high. AI has emerged as a dominant theme, overcoming many of these concerns and moving the entire market forward.”
About ISG Index™ ISG Index™ is recognized as an authoritative source of marketplace intelligence in the global technology and business services industry. Every 91 consecutive quarters, the latest industry data and trends from financial analysts, enterprise buyers, software and service providers, law firms, universities and media are detailed.
The results of the 2Q25 Global ISG Index were presented during the webcast on July 10th. Visit this webpage to view webcast replays and download presentation slides.
About ISG ISG (NASDAQ: III) is a global, AI-centric technology research and advisory company. A trusted partner of over 900 clients, including 75 of the world's top 100 companies, ISG is a long-time leader in technology and business services, and now leverages AI to help organizations achieve operational excellence and faster growth. Founded in 2006, the company is known for its unique market data, detailed knowledge of the provider ecosystem, and expertise from 1,600 experts around the world working together worldwide to help clients maximize the value of their technology investments.
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