Worldwide Services Revenue Crossed $1 Trillion Mark in 2018, According to IDC

Worldwide revenues for IT Services and Business Services totaled $513
billion in the second half of 2018 (2H18), an increase of 4.5% year over
year (in constant currency), according to the International Data
Corporation (IDC)
Worldwide
Semiannual Services Tracker.

For the entire year, worldwide services revenues crossed the $1 trillion
mark in 2018. Annual growth accelerated slightly to 4.3%, outstripping
the worldwide GDP growth by more than half a percentage point. This
largely reflects overall healthy corporate IT spending sustained by
large enterprises’ cautious yet optimistic business outlook.

Looking at different services markets, project-oriented revenues (i.e.
consulting, integration, application development, etc.) continued to
outpace outsourcing and support & training. They grew by 6.4% year over
year in 2H18 to $194 billion and 5.8% to $380 billion for the entire
year. The growth was led largely by business consulting and application
development markets. Business consulting grew 9.1% to $63 billion in
2H18 and 8.3% to $123 billion for the year. Custom application
development (CAD) grew 8.3% to almost $24 billion in 2H18 and 7.5% to
$46 billion for 2018 (compared with only 5.1% in 2017). Market growth
was largely due to strong results in the United States. As traditional
U.S. enterprises and government agencies continue to tackle and adopt
digital transformation, strategic consulting remains critical in larger
projects. Digital transformation is also driving up new application
development work – not just “new apps” but also upgrading “legacy apps.”
The accelerated growth in CAD coincides with the strong rebound on the
software side.

In managed services, revenues grew 3.8% to $240 million in 2H18 and 3.6%
to $473 million for 2018, which is on par with real worldwide GDP
growth. Application-related managed services revenues (hosted and
on-premise application management) outpaced infrastructure and business
process outsourcing (BPO), growing by 5.8% to $41 billion in 2H18 and
5.6% to $80 billion for 2018. Like application project work (CAD),
application outsourcing serves as a vehicle for buyers to access new app
skills (i.e. cloud, analytics, machine learning, etc.), as well as
modernizing legacy apps via external providers. IDC expects
application-related managed services to continue to out perform other
outsourcing segments.

IT Outsourcing (ITO) continued to decline due to flat or negative growth
in the mature geographic markets. This was offset somewhat by moderate
growth in horizontal business process outsourcing (BPO).

On a geographic basis, the United States, the largest services market,
grew by 4.8% to $233 million in 2H18 and 4.6% to $459 million for 2018,
a moderate acceleration. Strong economic growth in the U.S. despite
policy uncertainties, coupled with moderate but steady government
spending increases, have kept both corporate and government IT spending
robust. Funding for new projects to acquire new capabilities and tools
offset continuing downward pressure on commodity services.

Western Europe, the second largest market, grew by almost 3% to $266
billion for 2018, much slower than the U.S. but in-line with IDC’s
previous estimate and more than twice as fast as real GDP growth for the
region. This was driven largely more application-related activities in
the region, notably CAD and application outsourcing.

Asia/Pacific (excluding Japan) (APeJ) growth cooled slightly to 6.2%
with revenues of $110 billion, partially reflecting economic angst over
the impending trade war between the U.S. and China, and the economic
slow-down in key mature markets (i.e. Australia/New Zealand, South
Korea). Japan enjoyed a slight growth uptick, as business results from
the major Japanese services vendors posted slightly higher than expected
in 2H18, mainly due to continuing demands for system renewal. Other
emerging markets in the region continued to show robust growth (i.e.
India, the Philippines, Indonesia, Vietnam, etc.) However, their impact
on growth was limited by their size. Overall growth for the entire APeJ
region remains at around 5% for 2018.

In other emerging markets, both Latin America and Central & Eastern
Europe (CEE) saw faster growth in 2018 than the previous year. Except
for Venezuela and Argentina, and to some degree Colombia, major Latin
American markets are in economic recovery, which drove both corporate
and government IT spending. All foundation markets showed better growth
last year. In CEE, most major geographic markets grew between 6% and
15%, mainly boosted by dynamic economic growth and increased tax
revenues. However, in sheer revenue size, CEE is still the smallest
geographic market.

“Steady growth in the services markets are driven by a continued demand
for digital solutions across the regions with the Americas continuing to
contribute to the bulk of the revenue growth,” said Lisa
Nagamine, research manager, IDC’s Worldwide Semiannual Services
Tracker. “2018 surpassed the trillion-dollar mark, as we had forecasted
at the end of 2017. We expect future growth in many geographies
worldwide in coming years.”

“More sustained U.S. economic growth, at least compared to other mature
economies, allowed large government agencies and traditional businesses
to spend more on new projects in recent years,” said Xiao-Fei
Zhang, program director, Global
Services Markets and Trends. “Additionally, digital disruption and
global competition have also stoked their digital fear – go digital or
go broke.”

About IDC Trackers
IDC
Tracker products provide accurate and timely market size, vendor
share, and forecasts for hundreds of technology markets from more than
100 countries around the globe. Using proprietary tools and research
processes, IDC’s Trackers are updated on a semiannual, quarterly, and
monthly basis. Tracker results are delivered to clients in user-friendly
excel deliverables and on-line query tools.

For more information about IDC’s Worldwide Semiannual Services Tracker,
please contact Kathy Nagamine at 650-350-6423 or knagamine@idc.com.

About IDC
International Data Corporation (IDC) is the
premier global provider of market intelligence, advisory services, and
events for the information technology, telecommunications, and consumer
technology markets. With more than 1,100 analysts worldwide, IDC offers
global, regional, and local expertise on technology and industry
opportunities and trends in over 110 countries. IDC’s analysis and
insight helps IT professionals, business executives, and the investment
community to make fact-based technology decisions and to achieve their
key business objectives. Founded in 1964, IDC is a wholly-owned
subsidiary of International Data Group (IDG),
the world’s leading media, data and marketing services company that
activates and engages the most influential technology buyers. To learn
more about IDC, please visit www.idc.com.
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