Technology: Industry Trends Q3 2024

The third quarter of 2024 saw significant developments in the global technology industry, marked by strong growth in cloud services, rising AI adoption, increasing cyber threats, and a resilient M&A market. This analysis highlights five key trends that have shaped the industry and compares them to previous quarters and years for context.

Record Growth in IT and Business Services

The global IT and business services market reached a new pinnacle in Q3 2024, driven primarily by the continued expansion of "Anything as-a-service" (XaaS) solutions that broadly covers SaaS (Software-as-a-Service), PaaS (Platform-as-a-Service), and IaaS (Infrastructure-as-a-Service).

The market’s annual contract value (ACV) hit a record $26.7 billion, a 15% increase from Q3 2023. This represents the fifth consecutive quarter of sequential growth, bouncing back from a low point of $23.2 billion in Q2 2023.

The XaaS segment alone grew by 23% year-over-year, led by a 30% surge in infrastructure-as-a-service (IaaS) ACV, reaching $11.9 billion.

The steady recovery of the "Big Three" cloud providers—Amazon Web Services (AWS), Microsoft Azure, and Google Cloud—has been instrumental, with their collective ACV increasing by 49% to just under $9 billion, a record high. This growth reflects the increased demand for AI-driven cloud platforms, particularly those focusing on artificial intelligence (AI) innovations.

AI Adoption Accelerates but Challenges Remain

AI has become a central force reshaping businesses in 2024, with 75% of organizations now integrating multiple AI features into their daily operations. This includes the widespread use of chatbots and virtual assistants, with 69% of businesses leveraging these technologies to enhance customer engagement and operational efficiency.

Marketing departments have been at the forefront of AI adoption, with over half of companies using AI to optimize campaigns. However, the rapid adoption of AI is not without its challenges.

A survey revealed that 34% of businesses face difficulties due to a lack of employee awareness about AI tools, while 23% struggle with poor data quality. To maximize the potential of AI, companies will need to invest not only in technology but also in training and better data infrastructure.

Cyber Attacks Reach Unprecedented Levels

Q3 2024 witnessed an alarming spike in global cyber-attacks, marking a 75% increase compared to the same period in 2023.
On average, organizations experienced 1,876 attacks per week, with the education and research sector being the most targeted, followed by government and healthcare industries.

Regionally, Africa saw the most significant increase, with weekly attacks rising by 90% year-over-year to an average of 3,370. Ransomware remains a persistent threat, with over 1,230 incidents reported worldwide in Q3. North America was the hardest hit, accounting for 57% of all ransomware attacks. This surge highlights the growing need for robust cybersecurity measures and continued vigilance in an increasingly digital world.

Managed Services Continue Steady Growth

The managed services segment - a segment with third-party providers manage key functions (IT, Marketing, HR) also saw sustained growth in Q3 2024, with a record $10.9 billion in ACV—up 5% year-over-year and nearly 8% from the previous quarter. This marks the 15th time in the last 17 quarters that the segment has grown on a year-over-year basis.

The number of contracts awarded in managed services increased by 4% to 690 deals, though this was a slight 5% decline from the previous quarter. Notably, the quarter saw nine mega-deals (valued at $100 million or more), the highest number recorded for any third quarter in the last seven years. However, the total ACV of these mega-deals was down 15% compared to Q3 2023. Despite these fluctuations, managed services remain a reliable growth area, particularly in IT outsourcing and data center services, which saw a 64% year-over-year increase in demand.

Resilient Technology M&A Activity

Despite economic headwinds such as high interest rates and supply chain challenges, the technology mergers and acquisitions (M&A) market displayed resilience in Q3 2024. The sector saw 314 deals, with small-cap investors and strategic players driving consolidation. The total deal value reached €30 billion in the first half of the year, comparable to the second half of 2023, indicating a stable M&A environment.

This steady deal flow highlights the confidence investors have in the technology sector’s long-term potential, despite near-term disruptions.

Sponsor-backed transactions have also contributed to the sector’s stability as investors continue to focus on growth through strategic acquisitions.

Final Take

The third quarter of 2024 showcased several notable trends in the technology industry, with record-breaking growth in IT services, increasing adoption of AI, a sharp rise in cyber threats, and a resilient M&A landscape.

While challenges such as cybersecurity risks and AI implementation hurdles remain, the industry's overall momentum indicates continued strength as it heads into the final quarter of the year.

With forecasts predicting even stronger growth in 2025, the technology sector is set to maintain its pivotal role in the global economy.

Resources