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Europe's managed services saw a decline in Q4 2024, while cloud services grew significantly, driven by AI adoption.
In the fourth quarter of 2024, Europe’s IT and business services market experienced mixed results, with managed services showing a decline despite overall growth in cloud services driven by AI adoption. Managed services faced a 5% year-on-year drop, totaling US $3.7 billion, and saw a significant 25% decline compared to the previous quarter. This slowdown was during a record-breaking third quarter largely influenced by ongoing economic and geopolitical tensions that continue to raise uncertainty. There was an upsurge by 10%, however, concerning the managed services contracts awarded; such contracts increased with 283 ones signed in that quarter. For instance, compared to six Q3 mega-deals, there had been only one mega-deal awarded in Q4 at more than $100 million.
The IT outsourcing (ITO) segment, a key driver of managed services, was down 7% year-on-year, largely due to an 18% decline in application and development services. BPO, however, grew 2% to US $992 million, with facilities management and HR services contributing to the growth. On the other hand, the cloud-based as-a-service (XaaS) segment saw impressive growth, with ACV rising 42% year-on-year to US $4.6 billion. The XaaS market was boosted by strong performances in both infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS), which grew 52% and 21%, respectively.
For 2025, analysts foresee a revival in demand for managed services, with expectations of 4.5 percent in terms of revenue growth. With the challenges from the economy and geopolitics remaining, the tide is predicted to turn on both fronts-IT and business services-by AI investments and digital transformation.
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