New research from ISG suggests that organisations across the Asia-Pacific region are turning to partners to handle their IT, and cloud spending is taking a hit.
The Asia-Pacific ISG Index, which measures outsourcing contracts of a minimum annual contract value of US $5 million or more, saw the market for cloud-based XaaS fall to US $2.9 billion, which is a 28% decline for the quarter and the lowest it has been since the third quarter of 2020.
Meanwhile, demand for managed services increased by 30% for the quarter, to US $1.1 billion. The numbers here are slightly misleading, as there were two “mega-deals” of more than US $100 million, and the overall number of deals was down 19.5% to 62. Nonetheless, the annual contract value of restructured contracts and new scope awards increased by 45% and 21%, respectively.
This suggests that managed services are better valued in an uncertain economy, where MSPs can bring stability to their client organisation’s IT spaces.
Meanwhile, the declining spending on cloud services is largely due to a normalisation in the market, according to Scott Bertsch, ISG Asia-Pacific partner and regional leader.
“Enterprises in Asia-Pacific are increasing their spending on traditional IT and business services outsourcing as a lever for cost optimisation in an uncertain economy,” Bertsch said.
“The cloud sector, meanwhile, continues to suffer a reversal of fortune. Enterprises that scaled up quickly during the pandemic are now rationalising their cloud costs and postponing discretionary cloud spending.”
A Bullish Forecast for All
Despite the quarterly decline, ISG remains bullish on the cloud space. While the forecast has been lowered compared to last quarter, ISG still sees double-digit growth for XaaS (11.5%) for 2023 overall.
Meanwhile, the managed services growth forecast remains steady at 5%, suggesting that ISG expects a flatter few quarters with some normalisation ahead. However, overall, MSPs across the region have opportunities and available investment dollars to capitalise on.
“In determining our forecast, we considered macro uncertainties that have delayed decision-making and tightened discretionary spending, thus slowing movement in the pipeline,” said Bertsch. “We also noted interest rates have risen more in the past year than in the previous 30, which may dampen big infrastructure investments. But the difficult comps will soon be behind us, and excitement is growing around generative AI. That could provide a tailwind for cloud services.”