ISG Provider Lens™ Multi Public Cloud Services - Managed Services - Midmarket - Nordics 2024

Multicloud interoperability and cost optimization solutions are becoming increasingly important

By 2023, digital transformation had become a central focus for Nordic companies, with many incorporating it into their strategic plans. This growing trend is reflected in the increasing adoption of AI technologies. AI appications, from customer service to data analysis and operational improvements, are rapidly becoming more prevalent across industries. This shift highlights the region’s commitment to leveraging technology for enhanced business performance and innovation.

The conflict in Ukraine has intensified existing supply chain disruptions, affecting IT investments across the Nordics. Companies are grappling with rising IT costs and a shortage of skilled labor, which is directly impacting their cloud adoption strategies. Consequently, many organizations are focusing on projects that deliver immediate business value while deferring less critical initiatives. This trend underscores the need for agile and cost-efficient cloud solutions that can adapt to the evolving market conditions.

Considering the shifting geopolitical landscape, there is growing momentum for enhanced Nordic cooperation on business policies related to digitalization and the green transition. Nordic authorities have emphasized the importance of working collaboratively to tackle these challenges and boost regional competitiveness. This collaborative approach
fosters a supportive environment for cloud adoption, as countries align on common standards and share best  practices.

Nordic companies are increasingly establishing strategic partnerships with leading cloud providers such as AWS, Microsoft Azure and Google Cloud to strengthen their digital capabilities. These partnerships enable organizations
to harness advanced technologies while complying with local regulations and addressing specific regional  requirements.

The emphasis on these collaborations is driven by the need for customized solutions that align with business goals
and geopolitical considerations.

Despite inflationary challenges, the Nordics has shown economic resilience, with IT spending projected to continue increasing in 2024. Key investments are being made in cloud services and cybersecurity, which have become critical for maintaining competitive business environments. The region has also emerged as a strong player in the global software market, with substantial growth in software exports contributing to its economic strength.

Cybersecurity has become a top priority in specific sectors, with companies preparing to boost their defenses against the increasing frequency of cyberattacks. Investments in cybersecurity are expected to grow further, reflecting the need to protect digital assets and infrastructure. Moreover, the adoption of Internet of Things (IoT) technologies is growing, particularly in energy management and smart infrastructure, highlighting the region’s innovative approach to digital integration.

Sustainability has also become a major focus, with businesses significantly increasing investments in green technologies. These efforts are aimed at reducing carbon footprints and aligning with climate goals, demonstrating a commitment to environmentally responsible business practices in the Nordics. Nordic banks are focusing on sustainability regulations as they prepare for the upcoming EU Corporate Sustainability Reporting Directive (CSRD), which will take effect in 2025. This transition requires improved data capabilities to effectively track sustainability metrics and manage associated risks. Regulators are emphasizing how banks incorporate sustainability into their operations, highlighting the importance of robust governance frameworks to support these efforts. GAIA-X fosters collaboration among local cloud providers and promotes the development of a European cloud ecosystem. This initiative encourages Nordic businesses to consider local alternatives instead of major hyperscalers such as AWS, Microsoft Azure and Google Cloud. By creating a framework for interoperability and data sharing among certified providers, GAIA-X enhances the attractiveness of regional solutions for organizations concerned about data privacy and compliance.

According to the Q2 2024 ISG Index™ call for the Europe, Middle East and Africa (EMEA) market, Europe’s IT and business services sector experienced marginal growth in Q2, as declining demand for managed services was offset by a significant increase in cloud-based service spending.

The EMEA ISG Index™, which tracks commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, recorded a 1 percent rise in ACV for the combined market (managed services and cloud-based as a service), reaching $7.7 billion. After hitting a low in Q3 2023, the combined market has grown consecutively for three quarters, reaching its second-highest quarterly ACV in Q2.

Managed services ACV declined by 8 percent, reaching $4.0 billion; however, this segment recorded a 3 percent sequential rise from Q1. A total of 295 managed services contracts were signed in the quarter, a 20 percent increase
from the previous year, including four mega deals (ACV of $100 million or more) compared with five in Q2 2023. Smaller contracts under $10 million witnessed a 38 percent YoY increase, while the Nordics experienced an 18 percent decline.

In the first half of 2024, the combined market ACV rose by 3 percent, reaching $15.2 billion. Managed services declined by 3 percent to $7.9 billion, while cloud-based services (XaaS) increased by 11 percent to $7.3 billion. A record 571 managed services contracts were signed, reflecting a 5 percent increase over the previous year, including six mega deals. The IaaS market grew by 15 percent to $5.2 billion in the cloud sector, while the SaaS market grew by 1 percent to $2.1 billion. ISG projects a 2 percent revenue growth for managed services for the entire year, a decline of 100 basis points from April’s forecast. Meanwhile, XaaS is expected to grow by 14 percent, a slight  reduction from the previous 15 percent forecast.

The IaaS market witnessed strong growth throughout 2022 but faced a downturn as enterprises adapted to macroeconomic uncertainties by optimizing their cloud investments, leading to five consecutive quarters of declining bookings. However, in 2024, this trend reversed, with the three leading hyperscalers — AWS, Google Cloud and Microsoft Azure — experiencing doubledigit growth in bookings to date. Specifically, bookings for these cloud  providers have increased by 14 percent in 2024. Moreover, 40 percent of enterprises plan to increase their cloud consumption over the next 12 months. A significant factor fueling this growth is the rising demand for AI services,
which is expected to continue driving the consumption of IaaS in 2025.

AWS, Google Cloud and Microsoft Azure are expanding their portfolios to support data and AI services, aiming to retain AI workloads within their ecosystems. However, a notable trend is the increasing interoperability of data and AI services across different cloud environments. For instance, Oracle Cloud Infrastructure (OCI) facilitates interoperability across AWS, Microsoft Azure and Google Cloud, enabling enterprises to integrate AI and data services seamlessly across platforms. While deploying AI and data services within these large clouds is becoming more straightforward, managing the complexity of enterprise cloud environments remains a challenge. The shift toward an intercloud architecture for data and AI could further complicate cloud management. Nearly half of the enterprises
plan to reduce the number of MSPs they use to manage their cloud estates over the next 12 months. However, considering the growing demand for AI and data services and the additional complexity this introduces, achieving  such consolidation may prove difficult for sourcing and technology leaders in 2025.

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