In 2023, around 1,800 managed services contracts with a total value of more than $100 billion were signed, as reported by the Services Contract Database maintained IDC. Despite the fact that the overall number of deals has decreased in comparison to 2022, the average size of each deal has remained the same. The market’s overall value would remain robust, fueled not only by sustained average deal sizes but also by an increase in larger deals.
Looking ahead, IDC forecasts a global increase in technology spending, expecting the number and value of large managed services contracts to grow in 2024, despite prevailing economic uncertainties.
There is a more general trend of companies increasing their IT spending, especially in fields like cloud computing and artificial intelligence (AI) services. These expenditures are not only test projects. Rather, they are fast becoming a crucial part of operational plans in many different industries, according to IDC.
A geographical breakdown of the data shows that over 45% of the global total contract value originated from the United States, signaling a robust uptick in tech expenditures within the region. Noteworthy agreements like the $14 billion AT&T and Ericsson deal, and Verizon Business's $2 billion partnership with HCL Technologies, would illustrate the scale and economic impact of such contracts. Meanwhile, Western Europe accounted for 42% of the global total contract value in 2023, marking a significant rise from the previous year. The region saw several billion-dollar contracts, particularly involving AI-powered services which aim to enhance process efficiencies.
AI-Centric Managed Services Contracts
Interestingly, the Nordics emerged as a hotspot for large-scale tech contracts, including notable deals like Danske Bank's agreement with Infosys, and the LahiTapiola Mutual Insurance collaboration with CG, indicating a vigorous growth trajectory within Northern Europe.
The surge in AI-centric managed services contracts is particularly noteworthy, with the average size of these deals more than doubling in 2023 compared to 2022. This shift would reflect a growing reliance on AI across key industries such as manufacturing and financial services, where AI implementations are becoming more prevalent. In response, major service providers are aggressively upskilling their workforces to cater to the burgeoning demand for Generative AI applications, which are increasingly integrated into existing business processes, stated IDC.
Looking forward, IDC projects a continued expansion in technology spending globally over the coming years. Despite some economic uncertainties, the number of large managed services contracts is expected to rise in 2024, with an anticipated increase in the average deal size. Early indicators from the first quarter of 2024 suggest a robust pipeline of mega deals, including several worth more than $500 million each. Notably, about 15% of the total contract value from these deals is projected to involve AI technologies, while cloud services are expected to constitute around 60% of the total contract value.
Furthermore, an estimated 3,000 managed services contracts worth more than $150 billion are due for renewal in 2024. This would present a significant opportunity for service providers, with over 200 of these deals potentially exceeding $100 million each in value, according to IDC.
