Dive Brief:
- The market for enterprise managed services declined year over year for two consecutive quarters to close out 2025, according to ISG data published Thursday. The tech research and advisory firm analyzed commercial outsourcing contracts with an annual contract value of $5 million or more.
- MSPs generated $10.9 billion in contract value during the last three months of the year, a slight decline of 0.3% compared to Q4 2024. ISG also saw the number of $5 million-plus contracts shrink by 2.5% to 727 in Q4, marking the second consecutive quarter of year-over-year decline in the segment.
- Despite the slowdown, ISG saw signs of a 2026 MSP market rebound, spurred by broadscale enterprise transformation efforts tied to AI adoption plans. “There are positive signals that bode well for the longer term,” ISG Chief AI Officer Steve Hall said in the report, noting that deal durations increased 14% and total managed service contract value was up 8% for the full year.
Dive Insight:
Global spending on technology services and software reached record highs last year, as AI investments mounted.
The combined market for managed services and cloud-based services generated more than $34 billion in contract value during the fourth quarter — a 16% increase year over year — and grew 18% to $127.4 billion for the full year, the highest annual spike since 2021, according to ISG’s analysis.
With AI in the spotlight, managed IT services lag behind the cloud. MSP annual contract value increased by less than 2% for the full year, recording its slowest growth rate since 2020. There were just under 3,000 managed service contracts valued at $5 million or more awarded in 2025, which totaled $43.4 billion. Six were $100 million-plus mega-deals, ISG found.
“Overall, 2025 was a solid year for the outsourcing market,” Hall said. “Growth was concentrated in cloud, infrastructure, engineering and AI-related demand, while more traditional, labor-centric services remained under pressure.”
Cloud-based software and service providers ended the year with a bang. ISG tracked record spending on cloud-based software and services, which accounted for $23.4 billion in annual contract value in Q4, an increase of 26% year over year. Infrastructure services alone contributed $18.5 billion to cloud contract value, with SaaS accounting for the remaining $4.9 billion.
“Spending on cloud, software and consumption-based services continues to drive the overall market, with strong demand for AI at its core,” Hall said. “Growth is particularly strong in infrastructure services, fueled by AI workloads, data platform expansion and enterprise cloud modernization.”
Service providers will continue to face tariff challenges and macroeconomic uncertainty in the year ahead, leading to cautious yet robust technology spending, according to Hall. “These factors are not stopping investment, but they are shaping behavior — favoring more deliberate, phased commitments over large, irreversible bets,” he said.
