The annual contract value (ACV), also known as billings, for managed services deals exceeding $5 million increased 2.7 percent year over year in the second quarter, according to the latest report from market research firm Information Services Group (ISG).
However, those gains were largely driven by increased contract activity in Asia. The MSP market in the Americas declined 11 percent, while Europe remained flat. Strong growth in Asia helped push global billings slightly higher to $10.9 billion.
As a result, the overall growth rate for MSP contracts in the first half of 2026 fell 1.2 percent year over year, with the second quarter marking the slowest growth rate since 2022.
New contract activity reaches a record high
At the same time, managed services billings tied to new scopes of work increased 14 percent to a record $8.2 billion. However, ISG analysts noted that much of this activity reflects service contract consolidation, as larger enterprises seek to reduce the number of providers they work with.
Industry demand varies by sector
Among industry verticals, managed services demand was led by the consumer packaged goods sector, where billings increased 59 percent. Transportation followed at 28 percent, energy at 21percent, and banking, financial services and insurance (BFSI) at 17%.
Manufacturing—the second-largest vertical after BFSI—declined 11 percent, marking its third consecutive quarter of contraction.
Within managed services, IT outsourcing (ITO) billings fell 3 percent to $7.7 billion. However, ISG analysts noted that ITO is increasingly being bundled with application services, which continue to experience growth.
AI’s impact remains uncertain
For the full year, ISG is maintaining its forecast of 2.1 percent revenue growth for managed services. The firm noted that the long-term impact of artificial intelligence (AI) on demand for IT services remains unclear.
On one hand, AI should reduce the cost of delivering managed services. On the other, it remains uncertain how much of those savings will be passed on to customers versus improving MSP margins.
Cloud services continue to surge
Meanwhile, the as-a-service (XaaS) market continues to expand, growing 65 percent year over year to $31.5 billion.
Within that segment, infrastructure-as-a-service (IaaS) surged 78 percent to a record $25.8 billion—$11.3 billion higher than the previous year. Software-as-a-service (SaaS) applications rose 25 percent to $5.7 billion. As a result, ISG increased its cloud-based XaaS growth forecast by 500 basis points to 30 percent.
Collectively, the global market for managed services and cloud-based XaaS grew 43 percent year over year to a record $42.4 billion.
Consolidation creates both risk and opportunity
The continued surge in XaaS spending may eventually lead to greater consumption of managed services. For now, however, the market appears to be undergoing a significant reallocation as larger organizations reduce the number of MSPs they engage.
That shift presents both a challenge and an opportunity. MSPs need to determine how to position themselves as indispensable strategic partners before a competitor makes a compelling case for consolidation and lower costs.
Photo: Andrii Yalanskyi / Shutterstock
This post originally appeared on Smarter MSP.