16% Increase in Q1 Market Value
The Asia Pacific technology services market saw a 16 per cent increase in the first quarter of 2026, driven by a surge in demand for AI-powered cloud infrastructure services, according to the latest ISG Index™ report.
The report from Information Services Group (ISG) highlighted a significant 18 per cent rise in as-a-service (XaaS) spending, reaching a record high of USD 6.3 billion. Infrastructure-as-a-service (IaaS) led this growth with a 19 per cent increase to USD 5.6 billion, while software-as-a-service (SaaS) grew by 15 per cent to USD 675 million.
Managed services also showed signs of recovery, growing by 1.9 per cent to USD 791 million, ending a four-quarter decline. However, within this segment, IT outsourcing declined 32 per cent to USD 409 million, and business process outsourcing fell 14 per cent to USD 133 million.
Industry and Geographic Insights
Several industries in the region, including transportation, healthcare, and business services, more than doubled their managed services spending. Meanwhile, the banking, financial services, and insurance sector saw a 4 per cent increase. However, the manufacturing sector remained flat, and telecommunications dropped by 60 per cent.
Geographically, Southeast Asia, China, and Korea experienced triple-digit growth in managed services. In contrast, larger markets like India, Australia-New Zealand, and Japan faced declines of 9 per cent, 33 per cent, and 54 per cent, respectively.
Michael Gale, ISG Asia Pacific partner and regional leader, noted, "Asia Pacific continues to be a cloud-first market, with digital transformation and AI fueling demand for infrastructure and software services."
ISG also announced the launch of its ISG AI Index™, indicating AI's significant impact on IaaS and SaaS, with respective increases of 160 per cent and 53 per cent since December 2022.
The firm projects a 25 per cent increase in XaaS revenue for 2026, reflecting sustained AI demand, while managed services growth is forecasted to remain steady at 2.1 per cent.
In the first quarter, a total of 61 managed services contracts were awarded, marking a 7 per cent increase year on year. However, this number was down 6 per cent compared to the previous quarter. Notably, the number of smaller deals, those between USD 5 million and USD 9 million, rose 19 per cent compared to the prior year.
Asia Pacific's XaaS spending has grown at a slower pace than the Americas or EMEA, averaging 13.5 per cent a quarter over the last 18 months. Despite this, the region achieved only the third quarter of double-digit growth in the last two years.
