The latest report from the Information Services Group (ISG) finds that global demand for managed services slowed in the fourth quarter, marking the second consecutive quarter of year-over-year decline in the value of large contracts.
Contract growth shows signs of cooling
In Q4 2025, the value of managed services agreements exceeding $5 million in annual value increased 1.2 percent to roughly $10.9 billion. By comparison, the prior quarter saw contract values reach $11 billion, down from $11.2 billion the year before. According to ISG, these two quarters represent the slowest growth rates since 2020.
For the year overall, the managed services sector grew 1.3 percent to reach $43.4 billion. Most of that growth came from the U.S., which posted a 9.7 percent increase. In contrast, EMEA declined by 1.4 percent and Asia Pacific contracted by 27 percent. However, ISG notes that U.S. contract values fell to $5.6 billion in Q4. Making it a 6 percent drop from $5.9 billion during the same period the prior year.
Across service categories, spending on IT operations and engineering services climbed 2 percent and 35 percent, respectively, while business process outsourcing (BPO) services declined by 14 percent.
Looking ahead, ISG analysts forecast 2.1 percent growth in managed services contracts for 2026. This aligns with their projection of relatively flat overall technology spending. While investment in artificial intelligence (AI) is expected to surge, ISG reports that this increase is largely offset by reductions in other project areas. Cybersecurity remains to be a key exception where spending is still expanding.
It remains unclear to what extent small-to-medium businesses (SMBs) will mirror these trends, but MSPs of all sizes should prepare for more of the same in 2026. Opportunities will persist, but economic uncertainty, rising geopolitical tensions, and a rapid shift toward AI-driven workflows will influence how organizations prioritize investments. IT isn’t becoming less important—rather, the way it is consumed is fundamentally changing. Many lower-level services that once required human expertise will increasingly be automated.
What MSPs should expect in 2026
MSP leaders should assume competition will intensify in the coming year. Those embracing the latest innovations can expect stronger margins, while laggards may find it increasingly difficult to compete. The real challenge—and opportunity—lies in determining which specialized skills will matter most as AI agents embedded in platforms and applications take on more of today’s routine tasks.
As 2026 begins, MSPs face both economic and technological uncertainty at levels not seen since the early days of the COVID‑19 pandemic. Yet, as always, when one door closes, another opens. Those prepared to step through will be best positioned to thrive.
Photo: Andrii Yalanskyi / Shutterstock
This post originally appeared on Smarter MSP.
