Information technology outsourcing (ITO) involves using service providers to deliver IT-reliant business processes, application services, and infrastructure solutions. In other words, outsourcing refers to contracting portions of work - that may typically be performed internally - to outside suppliers or service providers.
Overall, many different tasks or services can be outsourced. Outsourced IT services vary from programming and application development to technical support. In fact, it is possible to outsource entire IT departments, often to large companies, allowing organizations to reduce operational costs and focus on their core tasks.
Market size and segments
Figures estimating the market size of IT outsourcing vary depending on how particular sources define “outsourcing” and type of industries, services, and segments are included. Statista's Technology Market Outlook (TMO) divides the IT outsourcing industry into administration outsourcing, application outsourcing, web hosting, and other IT outsourcing. In total, these segments accounted combined revenue of nearly 400 billion U.S. dollars in 2022. Importantly, services such as cloud computing and its sub-segments, such as software as a service (SaaS), are adjacent services but are considered part of the core service of IT outsourcing. Additionally, information technology outsourcing makes up the largest share of the industry, as technology or IT consulting is the most common type of work sold by professional services organizations.
Despite the total number of managed service contract awards decreasing from almost 1,900 in 2020, to 1,639 in 2021, the managed services market has registered significant growth over the past years. Some of the most important market segments include managed security services, managed network services, managed data center and IT infrastructure services, managed communication and collaboration services, as well as managed mobility services. With a market size valued at 23.2 billion U.S. dollars in 2021, the managed security services market can also be segmented into different deployment types (on-premises and cloud), managed security service providers (MSSPs), and end-user verticals. Generally, MSSPs provide managed security services tailored to their customers' information technology (IT) infrastructure. In 2022, some of the most common IT security functions that companies outsourced to MSSPs were managed detection and response (MDR), along with the monitoring of Security Information and Event Management (SIEM) platforms.
Current and future trends in outsourcing
There is no doubt that digital transformation efforts accelerate IT outsourcing. A major aspect of this is cloud computing, with market segments like infrastructure as a service (IaaS), platform as a service (PaaS), and SaaS that provide some of the IT outsourcing services more conveniently and at a lower cost. Accordingly, the total contract value of the global “as-a-service” market has now exceeded several tens of billion U.S. dollars annually.
Automation is also among the trends shaping the IT outsourcing landscape because of its ability to supplement or replace traditional outsourcing services. This is illustrated by a considerable number of organizations worldwide expecting that automation as a service delivery model will increase in the future. Other noteworthy developments are advancements in chatbots and blockchain technology, as well as artificial intelligence and machine learning to avoid errors and enhance workflow productivity.
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Justina Alexandra Sava
Research expert covering the IT security & services market