Global demand for traditional managed services remained subdued in late 2025, even as spending on cloud-based and digital services showed strong resilience, according to the latest ISG Index for the fourth quarter of calendar year 2025.
ISG reported a record annual contract value (ACV) of $10.9bn for managed services in the December quarter. However, this was broadly flat year-on-year, reflecting continued weakness in IT outsourcing, which declined 6% from a year earlier. By contrast, business process outsourcing (BPO) and engineering research and development (ER&D) recorded growth during the quarter.
The wider market was increasingly driven by as-a-service offerings. In 2025, the as-a-service segment expanded 29% year-on-year, while managed services grew by just 1.3%, its slowest pace since 2020. ISG attributed the slowdown to a lack of mega-deals, volatility in smaller discretionary contracts and persistent pricing pressure.
Regionally, growth was led by the Americas, supported by stronger IT outsourcing activity, a recovery in the banking and financial services sector and steady demand for infrastructure services. Europe, the Middle East and Africa (EMEA) showed renewed momentum in the fourth quarter, pointing to a more stable outlook entering 2026.
Across the combined market, total ACV rose 16% year-on-year to $34.3bn, with as-a-service ACV climbing 26%, while managed services slipped marginally by 0.3%. Looking ahead, ISG forecasts managed services growth of 2.1% in 2026, compared with 20% growth for cloud-based services, underpinned by cloud migration, artificial intelligence adoption, cybersecurity spending and platform-led consumption.
Industry trends were mixed. Banking and financial services, which account for around 30% of managed services ACV, fell 20% year-on-year. Energy emerged as a bright spot, rising 72%, while manufacturing and consumer-focused sectors remained under pressure amid trade and policy uncertainty.
ISG said artificial intelligence is reshaping enterprise demand faster than traditional managed services models can adapt, accelerating growth in cloud and platform services while putting pressure on labour-based pricing and margins.
