Global managed services to grow in 2024 as enterprise IT spending rises

The global market for managed services will rise in 2024 due to organizations’ IT spending surge and larger investments in managed services deals involving AI and cloud computing, according to market intelligence firm IDC.

“This trend will continue over the next few years as more organizations experiment or go live with AI-enabled services. Although a significant portion of the IT spending will be AI-centric, cloud technology will continue to drive the IT market,” IDC said in a statement.

This expected upward growth, IDC said, is indicated by the strong start to the year despite a decline in deals in 2022-23.

According to IDC, more than 1800 managed services deals were signed in 2023 worth $100 billion in total contract value or TCV. Although the total number of deals declined in 2023 compared to the previous year, the average deal size remained constant, the report said.

There was a notable increase in the number of large deals, particularly those exceeding $100 million in TCV. This trend, IDC attributed to the growing investments by organizations in areas such as AI and cloud.

Of all the managed services deals in 2023, more than 45% of global TCV was concentrated in the USA which IDC attributed to the heightened technology spending in the region. “Several notable contracts include: the AT&T and Ericsson agreement worth $14 billion; the Verizon Business and HCL Technologies contract worth more than $2 billion; and the CoreLogic and Cognizant deal worth $1 billion,” the firm explained. Similarly, Western Europe accounted for 42% of the global TCV, which, according to IDC, is a “significant increase compared to 2022.”

The region (Western Europe) maintained strong growth despite various economic and geopolitical uncertainties. Several mega deals worth billions of dollars in TCV were signed in the region, which involved AI-powered services and process improvements, including the Liberty Global and Infosys agreement worth GBP 1.5 billion, IDC said. “Many of the large deals were signed in the Nordics, including the Danske Bank and Infosys contract and the LahiTapiola Mutual Insurance and CG deal, which further fueled the growth in the region.”

AI is ruling the roost

The IDC report on managed services clearly shows that AI-driven deals are gaining traction over the years and the firm has predicted that the trend will continue to hold good in 2024. It said the average size of the AI-related deals has more than doubled in 2023 as against 2022.

“Although AI offerings are mainly bundled with managed services, we are seeing higher levels of AI implementations across major sectors, particularly manufacturing and financial services,” IDC pointed out in the report.

The market intelligence firm further reasoned that major services providers have trying their best to upskill their workforce to meet the demand for “Generative AI applications as organizations will want further integration with their existing applications and processes.”

The research firm predicted that managed services deal size in 2024 will be larger than that of 2023. “Despite mixed signals from economic indicators, IDC expects an increased number of large managed services contracts in 2024 with a higher average deal size,” the firm said. It said several mega deals with TCV of more than $500 million have already been signed in the first quarter of 2024, of which 15% of TCV is from AI-related deals and 60% from cloud-related deals.

Another market research firm, Grand View Research is also quite optimistic and predicts MSP revenue to grow in 2024. “The global managed services market size was estimated at USD 299.01 billion in 2023 and is anticipated to grow at a compound annual growth rate (CAGR) of 13.6% from 2023 to 2030,” Grand View Research said in one of its reports.

IDC further predicted that approximately 3,000 managed services deals worth over an estimated $150 billion are up for renewal in 2024, presenting significant opportunities for service providers. “More than 200 of these deals are estimated to have a TCV over $100 million,” the report added.