IDC expects managed services deals incrase

There were more large deals (with total contract value (TCV) more than $100 million) signed in 2023 than in 2022. As predicted, IT spending by organizations is steadily increasing with larger investments in managed services deals involving cloud and AI services. 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.

More than 45% of the global TCV was signed in the USA, indicating increased technology spend 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. Western Europe accounted for 42% of the global TCV in 2023, which is a significant increase compared to 2022. The region 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. 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.

The average size of AI-related deals more than doubled in 2023 compared to 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. Major services providers have vigorously worked on upskilling their workforce to meet the upcoming demand for Generative AI applications as organizations will want further integration with their existing applications and processes.

Technology spending is projected to grow across all regions in the next few years. Despite mixed signals from economic indicators, IDC expects an increased number of large managed services contracts in 2024 with a higher average deal size. Several mega deals, with TCV more than $500 million, have already been signed in Q1 2024. About 15% of the TCV is from deals involving AI technology, and about 60% of the TCV is from cloud deals. And roughly 3,000 managed services deals worth more than an estimated US$150 billion are expected to be up for renewal in 2024, providing ample opportunity for service providers. More than 200 of these deals are estimated to have a TCV over $100 million.