Worldwide Services Contracts Reached $48 Billion in the First Half of 2022 with Strong Growth in Average Deal Size, According to IDC
Aug 31, 2022
NEEDHAM, Mass. – According to the IDC Services Contracts Database, more than 720 managed services deals were signed worldwide in the first half of 2022 (1H22) with $48 billion in contract value. While the total number of deals declined compared to the same period in 2021, the average deal size increased by 20%. Moreover, the average deal size in terms of Total Contract Value (TCV) has almost doubled when compared to 1H21.
"The impact of COVID-19 has accelerated the adoption of digital technologies, specifically focused on providing a digital workplace, to ensure the continuation of business and minimize disruptions while improving flexibility and enhancing productivity," said Supriya Kamath, senior research manager, Global Services and Market Trends at IDC. "The push to become a digital-first organization has created opportunities for managed service providers with the expertise and resources to facilitate these efforts."
About 94% of the 1H22 deals were in the IT Outsourcing market, while the remaining 6% were Business Outsourcing deals. The IT Outsourcing contracts were largely focused on digital transformation, cloud migration, and technology modernization. 1H22 saw a 40% decline in business process outsourcing (BPO) deal signings with an almost 50% decline in total contract value compared to 1H21. This trend is due to increased adoption of automation and AI-enabled technologies that are fast replacing traditional BPO engagements. This has affected large BPO deal signing as well, with 1H22 recording just one deal above the US$500 million threshold compared to two deals during this time the previous year.
On a geographic basis, nearly 58% of the deals were signed in the United States. Although federal deals seemed to drive growth, there were several large deals, such as the one between Oracle and AT&T valued at more than US$700 million and another between DXC and DIRECTV valued at around US$455 million, that contributed to the growth in the commercial sector. Western Europe accounted for 32% of the deals. The Asia/Pacific region (excluding Japan and China) has seen deal signings increase slightly compared to 1H21 with Australia and India mainly driving growth.
From an industry perspective, public sector deals contributed about 60% of the TCV for 1H22. This is nearly 10% higher than 1H21. Accenture's deal with Mount Sinai Health System worth around US$450 million was a significant win this year in the healthcare industry. This along with several large contracts, including the one between Microsoft and Government of New South Wales for cloud migration worth around US$590 million, contributed to the increase in public sector contracts. About 12% of the TCV was from the financial services sector, which includes the banking, financial services, and insurance industries. The largest deal recorded in this sector was between Kyndryl and Deutsche Bank, valued at more than US$800 million, for the consolidation of core banking systems into one platform and the migration of certain applications to cloud.
"With the imminent economic slowdown that is expected in various sectors and regions, the overall number of deal signings in 2022 could be affected, although not severely as IT spending, especially towards digital services, has become an integral part of most companies' growth and stability plans," added Kamath.
The IDC Services Contracts Database: Worldwide provides a comprehensive tool for sales enablement and competitive intelligence in the enterprise services and software market. The database is updated in real time with the most recent services contract signings for nine regions and 53 countries. Contract details include size and run rate in US dollars, the buyers' industry, geography, and size, the solution and technology, and the primary, secondary, and foundation market and submarket, according to IDC's taxonomy.
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