More than half of European IT outsourcing spending will soon be on cloud services

Cloud-based IT services will soon account for more than half of IT service spending in Europe, as the recovery from the Covid-19 pandemic continues.

These services accounted for 46% of total IT and business service outsourcing in Europe during the second quarter of this year.

During the three-month period, organisations in the Europe, Middle East and Africa (EMEA) region spent £4.5bn on IT and business services, which was 33% more than the same period last year, when the pandemic stalled the global economy.

The figures from Information Services Group (ISG), which includes all contracts worth $5m or more, also revealed the value of cloud-based as-a-service contracts agreed during the quarter was £2.1bn, 41% higher than in the second quarter last year, and 15% higher than the previous quarter.

Infrastructure-as-a-service (IaaS) contracts were worth £1.6bn in the second quarter, which was 47% higher than the same quarter last year, and an 18% increase on the first quarter. Software-as-a-service (SaaS) contracts had a total value of £520m, a 27% increase on last year.

Steven Hall, president of ISG EMEA, said the Covid-19 pandemic has accelerated the adoption of cloud services in Europe and that these services will soon account for more than half of the market.

“We are near a tipping point. Europe has traditionally lagged behind other regions in its adoption of cloud-based services, but now growth is accelerating,” he said. “Covid-related digital transformation has advanced cloud adoption by three to five years.”

The total value of traditional IT services, IT and business process outsourcing contracts in the quarter was £2.4bn, of which IT outsourcing was worth £2bn and BPO £440m.

Large European IT outsourcing contracts signed in the quarter included a £200m three-tear contract between service provider TietoEVRY and DNB Bank in Norway.

AWS won an IaaS contract with Ferrari to become its official cloud, machine learning and AI provider, while in SaaS, Microsoft won a Dynamics 365 contracts with ABN AMRO Bank and BMW.

Last week, ISG announced its global survey results found that global organisations spent $19.1bn on IT and business services in the second quarter of this year – a record high. Spending was 32% up on the same quarter last year, when contract activity was low because of the Covid-19 pandemic.

ISG’s Hall said demand was robust and showed no signs of slowing down, with cloud contracts key in enterprise plans. “Right now, cloud is central to virtually every one of our client conversations,” he said. “The debate is whether these are major structural shifts or Covid-19-related shifts.

“We believe the surge goes beyond pent-up demand and could signal the early stages of a longer-term cycle, with continuing strong investment in 5G, datacentre, compute, cloud provisioning and other business-transforming technologies.”

Globally, ISG expects cloud-cased as-a-service contract value to increase by 21% this year, with traditional IT services seeing an 8% rise in contract value.