Writer: Jordan Sprogis
Editor: Lillian Castro
Reviewer: Cristian Lopez
Key Takeaways
- Cloud-based services are driving growth in the IT and web hosting market, which is expected to see a 15% growth in 2025 despite recent tariffs.
- Web hosting providers may want to consider focusing on what the hyperscalers are already following: automation, flexibility, and adapting to cost-conscious enterprises.
New tariffs brought economic uncertainty to 2025, but the global IT and business services market managed to show growth, according to the ISG Index™.
The annual contract value (ACV) — or the average yearly revenue per customer — for managed and cloud-based services rose 18% year over year (YOY).
Together, its revenue reached $28.8 billion, marking the seventh year in a row of growth for the combined markets.
This growth is reportedly fueled by the booming XaaS sector, which jumped 30% YOY to a record $18.4 billion.
XaaS, or Anything-as-a-Service, includes the full suite of cloud-based models (-aaS), including software, platform, infrastructure, and disaster recovery services.
Software-as-a-Service (SaaS) saw its best quarter ever at $4.5 billion and 19% YOY, while Infrastructure-as-a-Service (IaaS) surged to $13.9 billion, up 48% from 2024.
The growth surprised experts, who anticipated a major slowdown in infrastructure and cloud spending due to the Trump administration’s tariff announcements.
It seemed like even the big players were doomsday prepping, with AWS, Google Cloud, and Azure accounting for 75% of IaaS spending, which went up 48% compared to 2024.
But for smaller hosting and infrastructure providers, there’s a takeaway here: The demand for cloud-based, flexible, and automated services is the next big thing.
And although hyperscalers are leading the way, there is room for fellow providers to meet enterprises where they’re headed.
Future Projections
In light of the tariffs, there’s some good news — and potentially bad news.
Bad news first: In this quarter’s report, ISG lowered its growth forecast for managed services to -2.4% if tariffs are prolonged.
While this doesn’t indicate anything specific, it does suggest that enterprises are choosing to focus on solutions that are cost-conscious without the major commitment.
As for the good: ISG said the XaaS segment is still on track to grow 15-18% in 2025, showing that cloud-native offerings remain a top priority.
In the press release, Steve Hall, President and Chief AI Officer of ISG, pointed to cloud and AI as the primary drivers behind this growth.
Many organizations are bundling AI capabilities into IaaS and platform offerings, from content generation and analytics to intelligent automation and customer service.
Similarly, service providers are embedding AI into delivery models to enhance their existing features, like predictive maintenance and code generation.
But Hall also cautioned that geopolitical issues will officially factor into Q2 forecasts.
“The introduction of sweeping tariffs and potential retaliatory measures has raised short-term uncertainty — particularly related to discretionary IT spend,” he said.
Enterprises know spending limits are on the horizon, so they’re saying goodbye to unnecessary spending.
Providers that can deliver speed, scalability, and automation without heavy up-front commitments are going to be the ones that win.
