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Combined market up 56%, as infrastructure spend more than doubles
Managed services up 12%, as enterprises look for savings to fund AI
LONDON--(BUSINESS WIRE)--
Surging AI demand propelled Europe’s technology services market to a new high in the third quarter, as infrastructure spending more than doubled and traditional managed services grew by double digits, the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm, finds.
The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows third-quarter ACV for the combined market (both managed services and cloud-based infrastructure and software services) soared 56 percent—its fastest growth in eight years—to US $14.9 billion. It was the fourth straight quarter that combined ACV growth has exceeded 20 percent, averaging 39 percent in that span.
“The European market is absolutely roaring right now,” said Anthony Drake, president, ISG EMEA. “After surpassing US $10 billion for the first time in last year’s fourth quarter, demand continues to push higher, with more than US $5 billion of incremental spend added from a year ago—and US $2 billion added just since last quarter. We’re seeing double-digit growth in managed services, led by business process outsourcing, as enterprises continue to emphasize efficiency and cost savings, but the real story is the meteoric rise in infrastructure spending to support accelerating AI adoption. The region is on a roll.”
Third-Quarter Results by Segment
ACV for the as-a-service (XaaS) segment surged 85 percent year on year, its fastest growth ever, to a record US $10.6 billion, as AI-driven spending on infrastructure services (IaaS) more than doubled (up 106 percent from the prior year), to a new high of US $9.1 billion. Software-as-a-service (SaaS) ACV, meanwhile, was up 17 percent, to a record US $1.5 billion. It was the tenth straight quarter the XaaS segment has produced double-digit growth, averaging 42 percent in that timeframe.
Spending on managed services advanced 12 percent year on year, to US $4.3 billion, although ACV was down 10 percent from the second quarter. A total of 241 managed services contracts were awarded in the quarter, down 2.4 percent from the prior year. Among them were six mega deals (ACV of US $100 million or more), up from two last year, with the ACV of those deals up 275 percent, to US $971 million. The increase in mega-deal volume and ACV reflects an overall surge in larger deal (US $50 million and higher) activity, where volume is up 78 percent year on year.
Within managed services, IT outsourcing (ITO) was up 6 percent, to US $2.8 billion, as data center services more than doubled and bundled application development and maintenance (ADM) and infrastructure services grew by double-digits, offsetting a 19 percent decline in standalone ADM services. Business process outsourcing (BPO), meanwhile, climbed 16 percent, to US $948 million, led by double-digit growth in industry-specific, customer engagement and facilities management services. Engineering, research and development (ER&D) services jumped 54 percent, to US $475 million, propelled by physical engineering work related to the buildout of Europe’s data centers.
By industry, ACV was sharply higher (up 74 percent) in manufacturing, a sector that accounts for 25 percent of the region’s managed services spend. Other large gainers were fast moving consumer goods and healthcare and pharmaceuticals, both up by triple digits, although each account for less than 10 percent of the region’s ACV. On the other hand, two of the region’s largest verticals for sourcing—banking, financial services and insurance (BFSI) and energy—saw double-digit declines.
Geographic Performance
DACH reclaimed the top spot as EMEA’s largest managed services market, with ACV of US $1.5 billion in the third quarter, up 80 percent year on year. ACV in the UK and Ireland rose 13 percent, to US $1.1 billion, its fourth straight quarter exceeding the US $1 billion mark. France, the region’s third largest market, grew 10 percent, to US $452 million. The smaller markets of Southern Europe and the Nordics, meanwhile, each declined by double digits.
Nine-Month Results
Year to date, combined market ACV climbed 43 percent, to US $39.8 billion. Managed services, at US $13.7 billion, was up 13 percent, while XaaS, at US $26.1 billion, soared 66.5 percent. A total of 819 managed services contracts were awarded year to date, up 7 percent from last year, including 11 mega-deals, three more than the prior year, with the ACV of those deals up 37 percent.
Within managed services, ITO was up 1.6 percent, at US $9.0 billion, while BPO advanced 58 percent, to US $3.2 billion, and ER&D rose 21 percent, to US $1.45 billion. On the cloud side, the IaaS market surged by 86 percent, to US $21.9 billion, while the SaaS market rose 7.6 percent, to US $4.3 billion.
2026 Global Forecast
For the full year, ISG is maintaining its forecast of 2.1 percent growth for managed services. At the same time, ISG is raising its previous growth forecast for cloud-based XaaS to 60 percent, up from 30 percent last quarter.Within this segment, IaaS is expected to grow 80 percent and SaaS is expected to grow 12.5 percent—the first time ISG has broken out IaaS and SaaS in its public forecasts.
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 96 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media.
The 3Q26 Global ISG Index results were presented during a webcast on October 8. To view a replay of the webcast and download the presentation slides, visit this webpage.
About ISG
ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data and research, in-depth knowledge and governance of provider ecosystems, and the expertise of its 1,500 professionals worldwide working together to help clients maximize the value of their technology investments.
Annual contract value is the amount of revenue a company expects from a single customer contract over a 12‑month period, adjusted when contracts span shorter or longer terms. Investors treat it like the annual “rent” from a subscription: it makes different deals comparable, helps forecast predictable revenue, and highlights whether customer accounts are becoming more or less valuable — useful for judging growth, stability, and churn risk.
infrastructure services (iaas)technical
A cloud computing model that supplies virtualized computing resources—such as servers (compute), storage, and networking—over the internet on a rentable basis. The cloud provider operates and maintains the physical hardware and the virtualization layer, while the customer provisions and controls operating systems, middleware and applications on those virtual resources. Compared with platform- or software-as-a-service offerings, IaaS gives users more control over system configuration and software but does not include management of the underlying physical infrastructure.
software-as-a-servicetechnical
Software-as-a-service is software that users access online through a web browser or app while the provider hosts and maintains the program and data, typically for a recurring fee. Investors care because it creates steady, predictable revenue and often high customer retention — like renting a utility rather than buying a machine — which helps forecast cash flow and values a company more consistently over time.
business process outsourcingfinancial
Business process outsourcing is when a company hires an outside firm to perform routine operational tasks—such as payroll, customer support, IT operations, or back-office administration—so the company can focus on its core products or services. Investors care because outsourcing often lowers costs, improves scalability and flexibility, and shifts operational risks; changes in a company’s outsourcing strategy can therefore affect profit margins, growth prospects and regulatory or service-quality risks.
