According to Forrester’s Global IT Services Market Forecast 2023-2028, global IT service industry spending will reach $2-trillion in 2028. However, despite forecasted growth, IT service firms will face several challenges in the next few years.
Key findings include:
* Growth will be substantial, with the IT service industry averaging 4,6% annual growth. Growth will be fastest in the Asia-Pacific region, reaching almost 6%.
In the near-term, growth will largely be driven by financial services, managed services and cybersecurity. Ten of the largest IT service companies saw 44% of their revenues come from financial services, manufacturing, and energy.
* GenAI is reshaping how services are delivered. In the US, 57% of the jobs lost to automation in professional services will come from GenAI. If GenAI increases IT service productivity to lower project delivery costs, more resources would be available to reduce project backlogs.
“The IT service industry captures more than a third of annual global tech spend. By 2028, the annual spend will increase significantly to reach $2-trillion,” says Michael O’Grady, principal forecast analyst at Forrester.
“Despite strong forecasted growth over the next few years, IT service firms must stay ahead of current challenges, including optimising headcount for cost and efficiency, staying abreast of competition from software and engineering firms, and utilising genAI judiciously to reshape service delivery. IT service companies that manage these challenges well will thrive and scale globally.”
Overall, the IT services industry will average 4.6% annual growth, with infrastructure as a service (IaaS) averaging annual growth of nearly 16%. Growth will be fastest in Asia Pacific, reaching almost 6%.
In the near term, growth will be driven by:
* Financial services and manufacturing. Ten of the largest IT services companies saw 44% of their revenues come from financial services, manufacturing, and energy. The growth opportunity is significant: Accenture estimates that only 5% of manufacturing and engineering services companies scale mature digital capabilities across their organisation.
* Managed services. Infrastructure as a service will nearly double its share of the IT services market — going from 8% in 2022 to 15% in 2028. The largest hyperscalers will enjoy the biggest growth. Google Cloud and AWS had 26% and 13% growth in 2023, respectively, with Azure and other cloud services growing 17% for Microsoft.
* Cybersecurity. Canalys estimates that two-thirds of the $224-billion in cybersecurity spend in 2024 will be for IT services in consulting, outsourcing, managed services, solution deployment and integration, maintenance, and support.
Despite strong forecasted growth in the market in the next five years, IT services firms predict weak results for 2024. Only in 2025 will real global GDP growth (a strong predictor of IT services growth) exceed pre-pandemic levels.
As a result, the IT services industry in 2024 will need to manage:
* Headcount vis-à-vis automation. IT services firms grew headcount to match supercharged pandemic demand, but many are now cutting jobs. Since headcount and revenue have been in lockstep, they must ensure that such cuts do not harm the bottom line. To improve margins, many are considering the productivity gains of automation, but most benefits are still unrealised.
* Competition from software and engineering firms. Engineering and IT services firms are competing to increase their share of IT services revenue, especially in consulting, security, maintenance, digital, and networking. IT services firms are also nurturing closer collaboration with the software industry: For example, Cognizant’s purchase of Thirdera strengthens its strategic partnership with ServiceNow for AI-driven automation.
* Generative AI in terms of how it reshapes the way that services are delivered. Fifty-seven percent of the jobs lost to automation in professional services in the US will come from generative AI. If genAI increases IT service productivity to lower project delivery costs, more resources would be available to reduce project backlogs. Project onshoring could become more popular as parts of consultant jobs become semiautomated.
IT services companies that thrive will scale globally, adapt regionally, and add value through skills and capabilities across government, industry, and defense.