Information Services Group, Inc. (III) Earnings Call Transcript & Summary

Good day, and welcome to the Third Quarter 2020 ISG Global Index Presentation. Today's conference is being recorded. And at this time, I would like to turn the presentation to the Index host this quarter, Sumeet Jain at Goldman Sachs. Mr. Jain, please go ahead.

Thanks, operator. Good morning, good afternoon, and good evening to everyone on the call. This is Sumeet Jain, and I cover IT services sector for Goldman Sachs. I would like to thank the team at ISG for their valued work on the industry and asking us, at Goldman Sachs, to sponsor this call today. ISG has been hosting these index calls for over 17 years, and has played a key role as a leading adviser and influencer in global IT services market. They're positioned, working with both enterprise buyers and service providers to offer a unique insight to key industry trends. These calls provide early insight into the tone for the upcoming earnings season. ISG's comprehensive view is all the more critical as we work through the unexpected market uncertainty brought by COVID-19. So with that, I would like to introduce Kathy Rudy, Chief Data and Analytics Officer for ISG. Over to you, Kathy.

Thank you, Sumeet, and welcome, everyone, to the ISG Global Index Conference Call. I'm Kathy Rudy. With me today is Steve Hall, Partner and Global Leader for ISG Index; Dave Lewis, Partner and Manufacturing Lead; and Stanton Jones, Research Director and Principal Analyst. This is our 72nd quarterly index call, and we've reached a new milestone. With today's call, our cumulative audience over the years has exceeded 20,000 participants. In our call today, we will assess the impact of the pandemic 9 months into the year. Dave will take a close look at the manufacturing industry, and Stan will discuss cybersecurity. I'm going to hand it over to Steve, and he's going to give you the headlines.

Great. Thanks, Kathy. Well, first, I can't believe that we're already starting Q4 and that we're reading out the Q3 index. It just seems like yesterday that we started the whole pandemic and certainly, COVID continues to apply it downward -- apply a lot of downward pressure on the industry. We still see clients delaying projects. We still see some internal cuts. But in general, clients have shifted to the virtual models, organizations are running their larger campuses. And in many cases, we are seeing a return to work and seeing longer term work-from-home options really being adopted by some of the biggest firms in the world. We expect sort of these trends to really continue as organizations continue to invest in workplace collaboration. And in general, compared to Q2, the overall industry is much healthier. The recovery is still gradual. Clients still are putting some larger deals on hold. It's still taking longer to renegotiate existing contracts, and sales cycles remain prolonged, but we are seeing more and more activity. If we look at the global market ACV of $14.6 billion this quarter, it rose 3% year-over-year. The $44 billion of ACV awarded year-to-date is also up 4.4% despite the challenges of the last 6 months. Most of this increase, though, was driven by the strength of the Infrastructure-as-a-Service market so think of this as the hyperscalers. Managed services performed much better than expected, though, we saw over $6.6 billion of ACV that was 10% higher than Q2 and was only down about 5% from the previous year. On a year-to-date basis, the overall managed services market is down 6.3%, but that's 120 points better than our Q2 forecast. The quarter-over-quarter rise was driven by several mega deals, increased restructurings and really strong showings by banking and industry-specific BPO deals. The as-a-service ACV increased 10.5% year-over-year, with growth in the Infrastructure-as-a-Service really offset some declines in the Software-as-a-Service in EMEA and Asia-Pac, which was pretty flat this quarter. The Americas combined market was driven by the as-a-service and was up 3.2% year-over-year and 9.2% year-to-date. Managed services in the region, though, was down 7% year-over-year, but this was a 26% quarter-over-quarter improvement, which really should set us up for a strong finish to a difficult year. There was over $4.6 billion of ACV awarded in EMEA, which was a 9.4% increase year-over-year, and it really helped push the combined market to positive territory on a year-to-date basis. The overall improvement was driven by a 10% year-over-year growth in the U.K. managed-services market, which saw a return of the $1 billion quarter. We remain cautious, though, given that most of the EMEA -- the improvements in EMEA were driven by a 450-point tailwind in foreign exchange rates, particularly with the Euro. Asia Pacific posted disappointing results with the market down 10% year-over-year and down 7% year-to-date. The managed services business in Asia Pac declined only 4% on the number of awards year-to-date, but we've seen a complete drop in the deals above $20 million in ACV. Looking at the global commercial market, we saw an increase of 3% year-over-year and 4.3% over the prior quarter. The combined market of $14.6 billion was the second best quarterly results ever with the managed-services business returning to historic averages. The as-a-service though market was flat on a quarter-over-quarter basis but stayed above the $8 billion quarter ACV levels. And the $6.6 billion of ACV awarded at managed services was a full 10% quarter-over-quarter increase. Managed services, while still down 5% year-over-year, saw a robust gain of, again, over 10% over last quarter. Third quarter '20 had a record number of restructurings, which were up 67% since last quarter, along with a 54% gain in banking industry ACV and a 91% spike in ACV for industry-specific BPO functions. There were also 5 megadeals this quarter, which normally isn't notable but was honestly a big deal given that the last quarter only had one, and we hadn't seen a lot of megadeals in the pipeline for a while. So if you look at the icons in the upper right on this slide, this shows the -- from a year-to-date perspective, the combined market rose 4.4% rise in ACV compared to last year that could be attributed primarily to the as-a-service, which rose 14.8% and offset the 6.3% drop in the maintenance services. The as-a-service market now makes up 56% of the combined ACV, so you can see we've clearly crossed the tipping point on digital transformation and the move to as-a-service models. The bar is indicating ACV by function year-to-date, so the ITO continuing to edge down. There continues to be a high volume of transactions in the ADM space but the deals remain smaller with 85% of the Q3 ACV being less than $20 million. BPO continued to display weakness, down 21% year-over-year despite a 38% quarter-over-quarter improvement. Finance and accounting outsourcing and industry-specific BPO, though both saw significant increases. F&A was up 42% year-over-year and industry-specific BPO was up 21% year-over-year. As expected, though, facilities management continued to see significant declines. The facilities management market was down another 49% on a quarter-over-quarter basis and was down over 80% on a year-over-year comparison. Software-as-a-Service crept up towards 3.2% year-to-date, primarily led by the large SaaS providers. Business communication platforms and cybersecurity software continued to surge as companies adopt the work-from-anywhere environment. And Infrastructure-as-a-Service took another large stride forward, up almost 20% year-to-date, but its growth rate is beginning to slow, whereas many agreements in prior years were pay-as-you-go, we are starting to see more long-term commitments as the G2000 enterprises engage with the hyperscalers. Now let's take a look at the global provider leaderboard. The regional leaderboards can be found at the end of the deck are downloaded from ISG's website, and the revenue is based on awards made during the trailing 12-month period. Companies new to the list are denoted by the asterisk. At the onset of the pandemic, the first response by many enterprise clients was to reduce the cost structure in innovative ways. That was then followed by implementing processes to increase efficiency, flexibility and resiliency in service delivery. Providers that were best able to align with those strategies should continue to win business and secure a spot on the ISG leaderboard. The big 15 on the leaderboard lists the multinational corporations like Accenture, TCS and Infosys as well as Atos and Capgemini. Many were quite busy signing major deals. During this quarter, the Fortune 500 utility company, Con Edison, selected Infosys to digitally transform its customer services capabilities. ABB, in a deal led by ISG, chose TCS to overall its hosting infrastructure and cloud management. Accenture and Microsoft joined forces to migrate SAP software at Equinor. And oil and gas firm in Norway to Microsoft Azure Public Cloud and Google Cloud entered a multiyear engagement with Keurig Dr Pepper. In The Building 15, Acentric and VMware qualified for the global leader board, joining firms such as HCL, Tech Mahindra, Genpact and Wipro. In another ISG-led deal, Wipro won a sizable multiyear engineering services contract with Italian automotive supplier, Marelli and Wipro also signed a multiyear contract with Metro Bank in the U.K. Several firms debuted this quarter among the global Breakthrough 15, including Palo Alto Networks and Rackspace. Mindtree also had a very successful quarter winning a notable contract with Husqvarna. The Booming 15 had the greatest turnover admitting 5 new firms, most in the as-a-service space. Firm specializing in collaboration in cybersecurity solutions, such as CoreSite, RingCentral, Slack and CrowdStrike joint service provider, HGS, making its debut. So let's take a look at the regions. And Kathy, you want to start us off with the Americas?

Sure, Steve. Thanks a bunch. In the Americas, the modest 3% year-on-year rise in combined market ACV this quarter belies much stronger growth compared to last quarter and even outperforms the pre-COVID first quarter. Managed services excelled in large deal activity with 15 awards over $40 million this quarter. As-a-service ACV posted gains year-on-year and quarter-on-quarter. Infrastructure-as-a-Service drove the increase. Software-as-a-Service ACV pulled back a bit, but still remained above $1 billion, which it has every quarter for more than 3 years. The icons in the upper right-hand corner show year-to-date performance compared to the same period in 2019. The pattern is similar to a year ago. Solid growth in combined market ACV, slight dip in managed services and strengthened as-a-service, which now has grown to 57% of the combined market. The bar charts on the right show ITO's ACV trending down ever so slightly, driven by smaller transactions. Notable deal -- notable large deals awarded this quarter include multiyear contracts, between Infosys and Vanguard as well as DXC Technology and Sabre. BPO slipped 0.5 percentage point. Vigor and F&A and industry-specific BPO couldn't become -- overcome tightening in contact centers and facilities management, as Steve mentioned. As a service growth in the Americas has outpaced that in EMEA and Asia Pacific. Software-as-a-Service stepped up again as it has in the past 3 years. Microsoft into 5-year deal with PepsiCo. ServiceNow also sealed some large deals with JPMorgan, Fiserv and Disney. Salesforce had a large win with PayPal for its sales and services cloud. A prime example of leading SaaS firms, leveraging their footprint by selling multiple products across an enterprise. Infrastructure-as-a-Service also beard along in its prior years through its ACV growth this year slowed to 23% from 29% last year. Best Buy signed a multiyear agreement with Google Cloud Platform. Google Cloud has used its strength in advertising and search to target the retail sector. This includes Costco, Target and the Germany-based Metro. Now we'll turn our attention to Asia Pacific, the smallest, but typically the most volatile region. This quarter, the combined ACV dipped below $2 billion for the first time this year. Managed services ACV suffered its lightest quarter in 14 years. Activity fell from last quarter, and virtually all of the deals were below $20 million. Large awards, historically a challenge for Asia Pacific to attract, have dried up since the onset of COVID. As is true globally, it's taking longer to close large deals. As-a-service started this year with a record-setting quarter, but once the pandemic took hold, its ACV has leveled off to a respectable $1.6 billion range. About $1.45 billion came from Infrastructure-as-a-Service, Software-as-a-Service had one of its lightest quarters in nearly 3 years. The icons in the upper right lay out the year-to-date performance. To put it in perspective, recall the first quarters of 2019 that included some phenomenally strong performances in managed services. Though, as-a-service showed bigger this year and now comprises a greater portion of the combined market than it did last year, it's not enough to lift the combined market above 2019. The bar chart shows -- the bar charts below the icons break out the performance by sector. The ACV of ITO plunged 40% against the very difficult 2019 compare. But even viewed on its own, ITO posted one of the weakest of 3 quarters since 2016. ACV from ADM and infrastructure plummeted despite lively activity, albeit smaller deal. A bright spot came from Accenture winning a sizable transaction with a large manufacturer in Asia. IBM also closed the deal with the Airport Authority of Hong Kong. BPO has always been a small market in Asia Pacific. But this period's ACV plummeted to half of 2019 and was the slowest in 14 years. Software-as-a-Service edged down. On the other hand, Infrastructure-as-a-Service ACV rose 14%. Market share battles and cloud infrastructure continue to rage fiercely within the region. Bharti Airtel signed an agreement with AWS. This will compete with the partnership between Jio and Microsoft to become more cloud services to the companies in India. Get ready, there's -- we're looking for a battle in the Indian telco broadband Internet and cloud market. Steve, who is going to take us now through EMEA.

Great. So if we look at Slide 8, this is really a summation of the EMEA commercial sector. So if we start first with the combined market ACV of $4.6 billion that was flat quarter-over-quarter. But as you can see, it was really up 9% year-over-year. The $2.6 billion in managed services ACV in EMEA was up 2% quarter-over-quarter and the number of transactions, interesting enough, was up 22% quarter-over-quarter. So we're seeing good volume. However, again, another concern is the 85% of the deals were under $20 million in ACV this quarter with only 10 contracts in the entire region over the $40 million ACV. So lots of apps deals and lots of smaller ACV-type deals. The U.K. was really the pocket of strength, and it generated over $1 billion in ACV during this quarter, which is a really great return for the U.K. All of the major geographies, except DACH, which was down 17% quarter-over-quarter, registered growth really no concerns with DACH though. DACH was up 5% on a year-over-year basis, and we continue to see really strong activity in that region. It was strictly just the matter of some signings and timings on the activity in DACH for Q3. The as-a-service ACV in EMEA was down slightly this quarter, but still stayed in that $2 billion range with a 16% year-over-year increase in the Infrastructure-as-a-Service space. Software-as-a-Service continued to show weaknesses on EMEA. So this is an area that we're watching. It was down 9% quarter-over-quarter and down 7% year-over-year. And the SaaS market surprisingly reported the lowest ACV per quarter in almost 3 years. So there is still some adoption concerns of the traditional SaaS solutions in the EMEA market. If you look at the icons in the upper right, this really is our year-to-date performance. And here, you can see that the combined market ACV was 2.6% higher than the same period last year. We saw some sluggish results, particularly in the Nordics that weighed down the overall managed services market. And the 2 largest markets, again, U.K. and DACH, both rose moderately. The as-a-service ACV grew at a faster pace this year than last and now takes up a greater percentage of the overall combined market at 43%. So it's still sort of a primarily managed services market, but you can clearly see the as-a-service market climb in EMEA now. If you look at the bar charts on the lower right, this really parses out each of the functions. So year-to-date, ITO was bumped up 8.5% against what was essentially a soft prior year compare and the ADM ACV surge. So we're seeing lots of ADM activity within the European market. Infrastructure ACV grew a bit more moderately, but it did have some brisk number of awards. A couple of notable contract signings. HCL secured a 5-year award with Ericsson. Again, this was a deal that was advised by ISG; and John Lewis partnered with Wipro to transform its overall infrastructure. The EMEA BPO market dropped 41% in ACV so far this year. Nearly every industry felt the decline. Facilities management fell 43% quarter-on-quarter and over 80% year-to-date. Contact centers stayed just slightly better, but were still down 70% quarter-over-quarter and over 50% year-to-date. And both sectors were really significantly impacted by COVID. The Software-as-a-Service market even edged down, but interesting, there were a number of very large deals in the market, including S/4HANA deals at Carrefour, Telefonica, Aon, BNP Paribas and Deutsche Börse. And then Workday also added several wins in EMEA this quarter at Air Liquide and Thyssenkrupp. The Infrastructure-as-a-Service was flat on a quarter-over-quarter basis in Europe, but was up over 20% year-to-date. And what we're seeing is this continued move to the public cloud in the EMEA market. I was with the multiple client calls this morning and yesterday, and we're seeing some clients want to move 85% to 90% of their workloads to the public cloud now. So we're seeing just broad adoption across that market. The big hyperscalers, AWS, Azure and Google Cloud continue their fierce competition. So let me just give you a rundown of that. During this quarter, HSBC selected AWS. Standard Chartered Bank chose Microsoft and Renault Group partnered with Google Cloud to accelerate their Industry 4.0 transformation. So you're seeing really big wins with big clients across the space with it. So let's jump over to my favorite slide. And as we've emphasized over the past several quarters, the pandemic has continued to impact industries very differently. One overriding lesson, though, I think has emerged over the last 6 months, and that's industries that deploy their digital capabilities pre-COVID are recovering faster and will emerge from the pandemic much stronger. Consumer industry groups, such as retail and CPG and the energy were the only 2 sectors that were up in all areas and regions. The retail and CPG vertical has grown despite a large number of bankruptcies among specialty retail, restaurants and apparel firms. And as we've noted, those had invested in omnichannel and e-commerce before the pandemic, remain better positioned to weather the storm. With over $9 billion of ACV awarded year-to-date, banking and financial services remained a dominant industry, though it was down 3% in managed services year-to-date. Deal activity has picked up recently, particularly in the U.S. and mainly in the as-a-service solutions market. The Americas market in BFSI, though, was up 30% year-to-date with really strong performance in the as-a-service market. Banks continue to shift spend away from on-prem deployments and legacy technology and fewer banks are augmenting their in-house software development groups through outsourcing. The spend is being redirected to customer-facing digital initiatives, especially cloud-based technologies. Banks are also investing in remote and contactless banking, reduction of payment fraud and risk and liquidity management systems. Regulatory compliance remains front and center as most regulations to survive the pandemic untouched. We are watching whether these digital initiatives will be implemented in the big bank section or come to market as individual components, and we're seeing different banks take different approaches there. Manufacturing is up slightly year-to-date that managed services ACV is down 4% globally. The EMEA market remains the bright spot for manufacturing, where the combined ACV was up 13%. The manufacturing is our special topic this quarter. So let me introduce Dave Lewis, ISG Partner and Manufacturing Lead to share his insights.

Thank you, Steve. Smart manufacturing has been on a rapid growth path for the past decade. But COVID-19 pandemic has changed the global economy tremendously. It's had a major impact on investment in smart manufacturing technology and services. Today, I'll share some insights about the smart manufacturing marketplace post-COVID, the anticipated adoption rate of the technology and use cases and what that means to the provider marketplace and where we expect the dollars to be spent. Prior to COVID-19, smart manufacturing enjoyed a robust growth. From an industry trend perspective, we saw a growing adoption of Industry 4.0, which is the formal name for smart manufacturing. You might have also heard it called the industrial Internet of Things. Regardless of the term, they all refer to production and operations, applying digital technology such as cloud, automation, analytics, machine learning and big data to create a connected ecosystem for manufacturing and supply chain management. The result has improved operations, supply chain resiliency, better customer experience and the potential for data-driven top line growth. Industry 4.0 started in Germany and is receiving a lot of government support globally at this point. Industrial automation has been a key element of streamlined manufacturing for many years and is further emphasized with smart manufacturing. Supply chains and manufacturing have been getting more and more complex and integrated. There's been a surge in demand to make equipment more effective and increase manufacturing yield. At the same time, operations technology is experiencing ever-increasing exposure to cybersecurity threats. From a manufacturing operations' perspective, a number of trends stand out. There's been significant disruption to operations and technology, both within and across plants and the entire supply chain. Applied analytics are transforming plant operations and supply chains. This reduces costs and improves order-to-delivery times, and it can also boost quality and worker safety. We've seen a rise in the use of digital twins that are digital representation of the physical manufacturing process. Digital twins make simulation models to optimize the product life cycle. Augmented reality and virtual reality technology are being applied in a number of use cases, particularly around equipment maintenance and training for plant employees. Finally, 4G, LTE and 5G networks are being set up to accommodate the low latency communications required for machine communications and edge computing within plants. Smart manufacturing allows for more flexible, customized production setups to improve the customer experience. Ultimately, as companies try to increase their top line growth, they're using analytics to shift from selling products to selling services, and this shift to an as-a-service model provides annuitized revenue streams. Before the pandemic, smart manufacturing was anticipated to grow appreciably into a market worth of several hundred billion dollars by 2025. However, as the pandemic took hold, millions of people lost their jobs, manufacturing operations shutdown and products weren't even being made or shipped. In the early days of the pandemic, we observed that manufacturing investment declined significantly worldwide. Some researchers predict that dampening early in 2020 may have an impact all the way through 2025. However, we disagree. In our conversations with leaders of manufacturing companies and leaders of providers, we learned that many enterprises realized in hindsight, they didn't embrace digital transformation fast enough. Those companies found themselves without the operational resilience they needed during the pandemic to react to the new situation. Now they're reassessing their digital strategy. From this, we believe there will be a stronger recovery post-COVID than had been anticipated. The growth rate could layer an additional 30% over what was originally expected by 2025. Although businesses have had reasons to embrace these digital technologies in the past, COVID-19 has provided a strong incentive to move forward and accelerate smart manufacturing and supply chain technology. So where will these dollars be spent? We think as the economies reopen post-COVID, adoption of Industry 4.0 will accelerate, which will lead companies into a more mature state of Internet of Things technologies and the processes and workflows that IoT will impact. Demand for manufacturing products and solutions will increase. We're going to see the acceleration of digital twins and maintaining operations as we had previously predicted. Part of the evolution will be a shift away from location-dependent solutions to more cloud and as-a-service solutions. Because companies had to figure out how to do certain operations when they couldn't go into a plant or a data center, we're seeing a move towards leveraging cloud solutions, automation and big data analytics. The pandemic fomented some supply chain issues to improve their resilience, today many companies are reconfiguring their supply chains back to the U.S. or Europe for more regional models. And they're also looking at alternative sources for raw materials and products to avoid the shortages experienced during the pandemic. Cybersecurity will continue to be an issue. We've already seen many incidents of hackers trying to get into manufacturing technology, which is a serious concern. According to a 2019 report which was conducted by the Ponemon Institute, 90% of organizations dependent on operations technology, such as manufacturing, utility, CPG industries experienced at least 1 major cyberattack over the past 2 years. This is certainly a problematic statistic for industrial facilities. Perhaps one cause of the problem is that as the report states, only 20% of the surveyed professionals believe they had the sufficient visibility into their organization's attack services. And here's a couple of examples. The world's largest pure-play semiconductor company shut down some of its fabrication operations after a WannaCry malware variant spread through the production network. And in another case, white hat hackers took control of an entire network of wind turbines at a U.S. wind farm using a cellular model for remote access to programmable automation controllers. Expect an increasing focus on the use of IT, IoT and smart manufacturing to reduce costs, improve operations and customer experience and ultimately, to find ways to stimulate data-driven top line growth. Even though companies are motivated to embrace Industry 4.0 technologies and use cases, the fully rolled out adoption rate right now is only about 25%. That points to considerable opportunity for growth. We expect investment to continue and opportunities of balance for providers that come up with solutions to meet these technology requirements and use cases. We believe manufacturing companies are moving to new digital operating models. They're focused on digital factories and supply chains, digital products and services and on smart connected products, everything from cars to tractors to washing machines, anything they can have intelligence built into it. At the core of all these capabilities are the digital platforms and backbone. By that, I mean anything affiliated with IoT, such as 5G network technology, cloud-based applications and systems, cybersecurity, automation and artificial intelligence. These will be the underpinnings of the analytics used to optimize operations and supply chains. The bottom line for providers, manufacturing companies will require partners that can help them implement and rapidly scale up smart manufacturing technology in order to reap the benefits I've described. Providers that can deliver these technologies and use cases and the applications that run on them, will benefit from the accelerated adoption of smart manufacturing investment. And the more that providers can help enterprises optimize their current cost structures to fund this new digital investment, the greater the provider's value add. With that, Stan, you're up next to talk about Cybersecurity.

Thanks, Dave. So the World Economic Forum ranks cyberattacks as the second most concerning risk for doing business globally over the next 10 years. And frankly, it's really easy to see why, the average cost of the data breach is almost $4 million, and this is primarily due to a reduction in business due to a loss of customer trust. So it's not just about the cost to remediate a breach. It's about the long-term reputational damage a breach can do to a company's brand. And this is really why we're seeing cybersecurity becoming a board room discussion with many of our clients and the pandemic is accelerating these discussions, as you can probably imagine. So the biggest work-from-home experiment in history has largely been successful, but it's put a massive strain on legacy security tools and thinking. And this is because the primary breach vector moves outside the data center and to endpoints like mobile devices and apps. So we think cybersecurity solutions and services are going to be a mega growth opportunity over the next decade. But cybersecurity also creates risk for service providers who they themselves are not adopting next-generation security technologies and postures. So let's jump in to provide a little context. So we recently completed some buy side research with ISG research partner, data-driven, where we focused on the strategic challenges for CIOs as it relates to digital transformation. As you can see here, 10 of the top 12 strategic challenges CIOs are facing are all related to security. So with the vastly increased numbers of remote workers due to the pandemic, the number of vulnerabilities has increased exponentially over the past 6 months. COVID-19 has also dramatically increased the number of phishing and ransomware attacks, many of them playing on users' fears and insecurities about the pandemic. So in a large network with hundreds of thousands remote users, the opportunities for infiltrations are just absolutely immense. But it's not just external bad actors that corporate leaders need to worry about. Breaches are increasingly coming from internal actors. In fact, half of all cybersecurity breaches happen because humans make a mistake. So the combination of complexity, combined with our basic future, we're just prone to making mistakes, is driving the need for a different way to approach cybersecurity. Enterprises can't just rely on a small team of security experts scraping by with outdated on-premises software anymore. They need multi-tenant cloud security solutions that can rapidly evolve. They need industry-specific cybersecurity expertise and threat-based intelligence. And they need all of this at scale in order to effectively reduce cyber risk. And on the whole, our view is the market is responding to this need. So let's spend a couple of minutes talking about how technology vendors and service providers are trying to address these challenges. So to keep things simple, we'll just talk about this in terms of software and services. So on the top of the chart here, you can see security solutions, which is essentially just cybersecurity software, which is increasingly delivered via the cloud. Security services are things like systems integration and managed services specific to cyber. Both of these are growing quickly, but today, we're going to focus on services, specifically managed security services, where the provider handles the entire security incident life cycle from threat identification to resolution. And one of the main reasons we think the managed side is going to see a ton of growth is because of talent or actually lack thereof. It's estimated that 3.5 million cybersecurity jobs will be available but unfilled by 2021, which is, of course, just around the corner. There's just not enough cybersecurity experts to meet demand. So this puts huge pressure on enterprises that need to hire and retain top cyber talent. And this is really why we think this represents such a big opportunity for the service provider ecosystem. But providers also need to do things differently than they do today. So next, I'm going to show you what we think a next-generation managed security provider looks like. So first, providers that will be able to implement and manage solutions and services via the cloud. It could be one of the big hyperscalers or it could be as a SaaS offering. The key here is that the technology evolves as quickly as threats do, and this is really the secret sauce of cloud. Threats are moving incredibly fast. So enterprises and their providers need to move fast too. The old plan, build, run model just simply won't work here. So providers need to work like product teams using agile principles. Third, humans just can't keep up with a lot of information anymore, but it does not mean that humans will go away. They just need help. So providers that can leverage machine learning to help cyber experts be better at their jobs will succeed. Those that don't or can't do this just simply won't be able to compete on speed or price. Solving big problems requires research and data, and academic institutions and governments are putting a lot of focus on cyber. So providers need to partner with universities and the public sector in order to continually stay ahead of emerging threats. Number five, we're seeing many of our clients preferring a hybrid staffing model versus a full outsourcing model when it comes to cyber. Enterprises have learned over the past 20 years that outsourcing security architecture and planning has really hamstrung them and putting -- has put many of them into the situation they're in today. So providers that know how to work in this way as a team rather than just an order taker, we think, will succeed. Successful providers will have an outcome-based commercial model that ensures clients pay for what they use, not what they buy. Technical debt is one of the biggest reasons why enterprises are struggling this area so much. So providers that can flip that script will succeed. And finally, providers that can help their clients translate all of this into an operating model supported at the board level that focuses on risk reduction rather than on simply increasing security, we think will be set for hyper growth over the next few years. So in summary, we think we're in the early phase of a really significant opportunity here with multiple tailwinds, such as SaaS adoption, work-from-anywhere and app migration to public clouds, we think the market is expanding rapidly. On the security solutions side, there are a ton of new SaaS solution providers in the market. IT management platform, Kaseya, phishing a simulation and training platform KnowBe4 and data protection vendor Druva, are just a few examples. These players are creating big valuations and will take share from incumbents. So if you think about what Salesforce did to the CRM market and what Workday did to the HR market, we think the same will happen here. The story is a little bit different, though, on the services side. We're seeing some providers start to demonstrate the 7 characteristics that I just talked about, but it's still a little spotty. And in some cases, the providers themselves are targets. Just in the past 12 months, we've seen a number of ransomware attacks as well as breaches due to mistakes from several leading service providers. So they are not immune. In fact, they are often more at risk and this is why the standard is even higher for providers. Those that can't meet this standard really won't last long in this take-no-prisoners environment. So given the inevitability of a breach, providers that can help companies define risk tolerance levels and put into place the technology, the operating model and talent to ensure these breaches stay within these levels, we think, are set to capitalize on some really significant growth over the next decade. Steve, with that, I'll turn it back over to you.

Great. Excellent. So let's take a look now at the summary and the overall outlook for the market. I think we can all give ourselves sort of take a deep breath, a little bit for what we've accomplished over the last 6 months, but also recognize that we still have some challenges ahead of us. So if you think of all the headwinds during the last 6 months, I would say that we really beat overall expectations for the market during the third quarter. The combined market was up 3% quarter-over-quarter and 4% -- 4.4% year-to-date. The managed services market added over $600 million of ACV during this quarter. On a year-to-year -- on a year-to-date basis, the market is down 6.3%. But again, as I've said earlier, that's 120 basis points better than what we forecasted. Highlights of the quarter included an increase in the number of transactions, again, strength in restructurings and an increase in the mega deals. Each of the 3 regions contributed. We saw strength in the U.K. return. We saw an acceleration of BFSI in the Americas, and we had a record number of industry-specific BPO transactions across both Americas and EMEA. And just to kind of highlight the strength of that industry-specific BPO transactions, this was the best quarter that we had seen for that particular business since 2011. So some really good growth there. Really, Asia Pacific was the only weak spot for the traditional managed services across the globe. And I think when you look at Asia Pacific, what you're really seeing is this broad move to the cloud and as-a-service is really driving that business model now, as Kathy talked about. As-a-service across the globe has steadily increased. The as-a-service ACV was up 15% over the same period, and it now comprises a larger percentage of the overall combined market, as we stated. The pandemic has really accelerated the digital transformation in many industries, especially in manufacturing, as David highlighted. IaaS is up by double digits in all 3 regions. So again, we're seeing this broad cloud adoption just across the globe down. So what do we expect going forward? So managed services was healthier than expected. We -- when we look at our pipeline, we see a strong pipeline of deals. The ACV growth could accelerate if several large deals come to award that we have some deep insights into. Though still down, we do expect the overall managed-services ACV to improve and be down less than 6% for the full year. So call it in that 6% range. There's some really early indications of the mega deals that could close in Q4. And if they close, I think we could see an ACV back in the $7 billion per quarter range again, which would be a good mark and where the industry has been. In the as-a-service market, infrastructure service providers, such as AWS, Azure, Google, Alibaba, Tencent, IBM, Baidu will continue to take advantage of the rapid growth in video conferencing, gaming, remote learning and online entertainment. I think we're still going to see SaaS put a little bit of the drag on the growth. We're going to have to see some growth in the midsized markets for the SaaS market to really get back to the growth that we would expect. But we are holding our forecast, 15.5% increase in the as-a-service space for 2021. And so at this point, let's turn it back over to the operator and start the Q&A sessions.

[Operator Instructions] And Mr. Jain, we will start with your questions of ISG.

Firstly, wanted to understand around the near-term on-site and engineer, particularly around the U.S. elections. We have generally seen in the past the U.S. election cycle, the large IT outsourcing deals are particularly stuck. So do you think the scenario is pretty much similar this time as well? And once the U.S. elections are behind, we may see the mega IT outsourcing deals coming back to the market?

Great. Thanks, Sumeet. And I haven't seen any tweets as I've been talking. So I don't know if there's been anything latest from the index, I will say that in general, this is a very different cycle than it was in 2016. I think what we saw in 2016 was just some -- the fear of the unknown, if you will. There was a lot of talk about immigration, about H-1Bs, about the impact on outsourcing. And we just don't see that in this election cycle. All the clients that I've talked to and that we as ISG is represented across the globe, there doesn't seem to be that level of concern that we've seen in past election cycles. But Dave, I know you're probably closer to it than I am from the Americas perspective. Any insights from manufacturing clients on how they see the election or concerns about the broader market trends?

Yes. I think, overall, we are not seeing the significant reaction as we did in the past, as you just indicated. Most of our clients are moving forward with their sourcing initiatives, certainly, their digital transformation strategies. There are some isolated incidents where some companies are concerned about the outcome of the election, not specifically as it relates to outsourcing, but more as it relates to offshoring. But we're seeing a lot of suppliers open up or expand delivery centers within the U.S., which is very attractive to our clients. So again, I don't see a major impact of the election other than in some isolated cases.

Yes. I think the last thing that I would add to that, Sumeet, is there's always concern over the last year about H-1Bs, and we've seen ongoing issues with it. We highlighted in our Q2. Stanton, I know you follow this closely for the firm. Any insights on the H-1B front?

Sure. Sumeet, so the time is interesting because, as you probably well know, the administration announced on Tuesday, a new executive order around H-1B, which raises the benchmark on wage levels, changes the regulations in terms of which degrees and occupations qualify for H-1B, changed the time line from down to 3 years to 1 year in some cases. So obviously, there's a lot in play here, a lot of variables. I think that actually goes into effect today. In fact, with the election coming up. That said, on the whole, I think our message is the same as it was when we talked about this last quarter. That we believe most providers have already baked this tightening into their delivery model. And as Dave said, we see a number of providers investing in building up onshore capability. Investing heavily in automation so that they can rely less on people, staffing up more offshore, doing more college recruiting, using U.S.-based subcontractors. So as we talked about last call, a lot of levers in play. So our view is that, that's kind of already baked in and don't see a huge impact in the near term.

Great. Back to you, Sumeet.

Got it. That's helpful. Secondly, I wanted to understand around your outlook. I think given the kind of outlook what you gave during the last quarter for the September quarter, we have clearly seen the ACVs what have been reported are much better. So I think the momentum has been clearly picking up. Now going forward, you also mentioned that for Q4, there is an early indication of mega deals. And I think this somewhat relates to the commentaries of IT service companies as well, where a lot of them are calling on that, the deal pipelines are at a multiyear high. So I want to understand here, if these deal pipelines more around the IT services over the last quarter because of COVID being pushed out or are we seeing entirely new set of work around digital transformation, what you called out in the slides, this has multiyear growth opportunity ahead?

Yes. It's a little bit of both, quite frankly. So we did see quite a few deals that were delayed the -- sort of the late February, early March time frame. So they impacted a little bit into Q1. And then we saw an awful lot of activity really get delayed sort of the late March, April, May time frame. Those delays were primarily associated though with people just figuring out how to work from home. And even the service provider community who just did a herculean effort during the early summer months to get their teams and the clients' teams up and running in a work-from-home environment, didn't focus as much on new scope. So you saw an awful lot of restructuring, deal renegotiation as you go forward there. And as I've said, that business was up 67% on an ACV basis during the quarter. I think the overall ACV, though, we are seeing a much healthier pipeline across. And again, with the early insights that we have, I think we could have a few surprises in Q4 but some of the deals get signed, that we think will, that could be quite promising for the overall quarter. And I know TCS announced yesterday, we've got some other announcements. I think we'll see a bit of an increase in the bookings for that because of some of that ACV. My caution is, again, sort of 2 things. One, a lot of the ACV was on a lot of activity, and again, 85% of those deals were under $20 million. And we're seeing an awful lot of ADM activity there, an engineering services activity. A lot of the ITO deals that have been the bigger harbingers of the market you're seeing some of that spend shift to the cloud market, which is why the hyperscalers are so far up. And again, I always look at that one metric that whether it's 55% or 56% of the market is now as-a-service that really does show that indication to that shift to cloud-based services from traditional data center services as you go forward. So that trend will continue. So that ACV is going to be associated with that trend, which we'll continue to see sort of the smaller deals go forward.

Got it. That's helpful, Steve. So this is the follow-up question for me. I guess, when you see the shift happening from IT outsourcing to the cloud hyperscalers, what does it imply for the existing base business for the IT services providers? Does it imply a huge deflationary impact to the existing base business?

Yes. I've spent a lot of time with a lot of senior people in the IT service provider space, both on the IT, the engineering, the app side and even the BPO side. I think what this implies from a -- the service providers that have a large IT landscape. So they manage data centers, they manage networks, they manage storage that work is clearly shifting to the public cloud. And the large hyperscalers are also developing managed services capabilities in that space. Now there's an awful lot of partnering that's taking place in that. But I think you'll see those traditional IT providers really start moving into cloud management platforms and also move into the engineering space. So where we see a lot of growth is really on software engineering capabilities or product engineering. So I'll use the example of large car manufacturers. Large car manufacturers, the car is essentially becoming a platform on wheels, which means it's software on wheels. And if -- the amount of technology that's embedded in cars requires millions and millions of lines of code, more and more companies are starting to look at the large Indian providers and global providers and essentially software product development companies to help them with that work. We're seeing this in retail, in banking, in insurance, in manufacturing across where it's the engineering work that's now being moved forward. That's going to be the continued next wave, I think for the traditional providers, as the traditional infrastructure piece becomes more and more cloud based. We also have, though, a fairly long tail of work on moving workloads to the public cloud. And there's a tremendous amount of work to really help organizations adopt and move their existing workloads or their existing applications to the public cloud environment and then the whole management structure underlying that to be able to help manage it going forward. Okay. With that, operator, can we open it up to other questions?

[Operator Instructions] Our first phone question will come from Bryan Bergin with Cowen.

I wanted to dig in a little bit around the industry-specific BPO strength that you talked about. Can you talk specifically where -- really, what industries, what type of activities? And was it broad-based across providers or concentrated to a smaller handful?

It was amazing how big the number was. So we saw almost $750 million of ACV in the industry-specific BPO. It was across insurance, it was across healthcare, it was across banking. And I think the big move that we're starting to see is analytics really being embedded into industry-specific solutions. More than anything, I think you're seeing this rise of analytics as a major piece of what's making that change. And the volume was record high as well. So still a lot of deals, but the overall ACV was excellent. So companies like Genpact, WNS, EXL, they've all got industry-specific BPO solutions now really targeting that space.

Okay. That's helpful. And then on the other side of that, you mentioned some contact center slowness, was that global or North America? And can you kind of -- why do you think that is? Was it relative to 1Q and 2Q activity as COVID hit? Or is there something else going on in that industry?

Yes. It was across the globe. And I think what we're seeing clearly is a bit of COVID was a big impact. Clearly, volumes were down and a lot of the big centers that use contact centers. So think of just the airlines and reservation systems is an easy one. Transaction volumes down 90%, that's clearly going to impact the call center capabilities. More broadly, though, I think what we saw is a lot of organizations reassess their contact center needs and we're repatriating some critical needs that just were not functioning at the work-from-home level. You also have an industry that's being significantly impacted with automation, whether it's RPA, whether it's chatbots, whether it's natural language processing that entire industry is being significantly disrupted. Third, you've got an industry where it's very much a shift left, if you will, where enabling the end user, the end customer to solve their own problem is a really big piece. So if you think of millennials and Gen Z, they're going to -- we're seeing more and more of that move to the mobile device. So instead of calling a call center when you're in a car accident, you're taking a picture, you're interacting on a mobile device. So the digitization of the value stream is lessening the load on the contact centers, which will continue as we go forward. Stanton, any -- I know you've studied this as well. Any additional insights you want to provide there?

Yes. No, I would kind of -- I guess, just reiterate what you said, Steve, hey, Bryan, by the way. Yes, I think if you think about the reduction in volumes across -- especially like in areas like travel, transportation and hospitality, that's a big part of it. And then as Steve mentioned, just a massive amount of investment and technology improvement going on as we start to fold natural language processing and narrow AI techniques into the technologies that are supporting call centers. Now we may not feel it as consumers. Sometimes I certainly don't. I'm getting -- still get very frustrated, but there is a lot going on behind the scenes to digitize what was traditionally done by humans. So a strong push to help them work together, kind of as I talked about on the cybersecurity topic, but there is a lot happening there and a lot of investment there to use technology delivered as a service, to work in partnership with people, and that's going to have a big impact on that BPO business.

Okay. Makes sense. Last one here. I didn't hear any pricing commentary within IT services, how would you characterize deal pricing relative to, obviously, what we heard last quarter?

I think from an ACV perspective on what we saw on the current deals, it's held pretty steady. As I mentioned last quarter, Bryan, there were a lot of pricing concessions given during COVID. And a lot of those are still going to hold in place through the end of Q4, through the end of the year. So this is the discounting that was provided, again, of the 15% to 20% in many cases. You also clearly have less volume with a lot of the deals. So there was some pricing pressure on that front just because of the normal artwork structures that are in place. But we haven't seen a big drop or big discounting, if you will, on pricing with the current deals that we saw going to market. Kathy, from a -- Kathy, did you see anything different from an Americas standpoint on the pricing on either BPO or ITO deals?

No, I was thinking this -- as you were talking, no, we have not, on an overall basis. As you mentioned, there was concessions being made right after COVID hit and those concessions are being reevaluated on a 3-month basis, and a lot of them are falling off now as they've either renegotiated the full deal for a go-forward level of activity or they've just dropped them completely. But as a whole, we have not seen major pricing concessions across any market.

And we will take our next question from Sudheer Guntupalli with ICICI Securities.

If I look at as-a-service, given the kind of high build around it in the market over the previous 6 to 7 months following COVID, we would have expected to see much stronger increase in as-a-service ACVs. But if we see the time series data over the previous 8 to 12 quarters, growth had only decelerated. Of course, we agree percentages can be often misleading and SaaS is playing a bit of a drag. But even if you look at absolute ACVs before and after COVID, it had actually come down and remained lower across geographies even after 6 months. So my question is when the narrative in the market seem to be so strong around a massive acceleration of digital transformation journey, isn't it intuitive to expect a significant jump in the ACVs across geographies versus pre-COVID rather than a decline?

Yes, brilliant analysis on that one. I was a bit surprised when I looked at all the final numbers this quarter as well. So when I looked at the Infrastructure-as-a-Service, it was primarily flat quarter-over-quarter. So it was up about 1%. Now I'll caution that the way that we look at Infrastructure-as-a-Service includes the hyperscalers, which grow faster. It also includes the colos and that it includes the telcos cloud platforms as well. So you get a bit of a mix there that may suppress it just a little bit. But I think the broader message is how difficult it is for large-scale enterprises to rapidly move workloads to the cloud. So clearly, what we saw with COVID is a big move to say, we're going to go and adopt cloud. And we got CIOs across the globe. Again, in multiple meetings that I was just in this morning, CIOs are really big firms, publicly stating that they want 95% of their workloads moved to the public cloud by x date. When that happens, you've got to engage the entire organization to make that happen and to make that move. And that's where the real work comes into play, and it's just difficult. So we are seeing lots of different suppliers now come out with really creative solutions to accelerate that move. So we've seen solutions that allow clients to go in, assess their workloads, automatically configure them to run in cloud, develop microservices, an API-first strategy, et cetera. But it's probably at least a quarter to 2 quarters from when a client decides to make that decision before you see significant workloads move in. So the ACV will be sort of the leading indicator, and then the revenues will start following as you go through that. And right now, we're just seeing an awful lot of deal activity in the space. The EMEA market over the last couple of years has been pretty slow in this, but it's really picking up. And obviously, the U.S. market has been fairly robust. But if you look at Asia Pac now, Asia Pac, 75% of that market on the Asia Pacific side is cloud adoption. So you're clearly seeing the sort of the progression across, and you're seeing it in the revenues of the big hyperscalers as well.

Sure, Steve.

That addresses the timing -- yes, absolutely.

Yes, yes. So one follow-up question. Some of the applications which are hosted on AWS as your -- be it OTTs or collaboration tools, where in your outlook also you mentioned, you expect a significant support from these players. We are seeing a significant increase in traffic and activity due to, say, stay-at-home restrictions. What I want to understand is if this is translating into incremental sales for hyperscalers and service providers? Or is it just translating into mere increase in utilization and not necessarily into incremental sales?

I'm actually pausing to process that question a little bit. I think it is driving incremental sales, and it is driving certainly higher utilization across. I mean when you look at some of the numbers that we're seeing through, we're seeing it come through the bottom line on EBITDA margins for service providers as well. But I don't think I've got the perfect answer for you because there's so many different variables that have impacted it right now that I think we're going to have to take it offline a little bit and think about it and get you a better response on it. It's just interesting because of all the variables that are impacting the utilization and the sales and the backlog right now that we're seeing across the remit.

Sure, sure, Steve. Just one last question, if I may.

Absolutely.

So if I look at your industry award trends. Yes, if I look at your industry award trends, I think this is something which I asked in the previous quarter as well. And just as a follow-up, so the trends in some of the sectors, which were heavily impacted, be it energy or, let's say, retail and consumer packaged goods, seem to be much stronger than some of the sectors which were not so heavily impacted, be it health care or financial services. So incrementally, you have any color to add on this? That's it from my side.

Yes. That's good. So on the retail consumer goods side, the managed services business was up 2%, heavily influenced by the CPG side of the business. And there were also several large deals with grocery change, et cetera, this quarter that influenced that. Energy was up 14%. Now energy is a bit of a smaller base. It's about a $2.5 billion ACV, but it was still up 14% of that number. Again, we're seeing good focus with oil and gas, with the utilities, et cetera. I would have expected that to be a little lower, especially with some of the cost pressures that the oil and gas companies are under and what's happening on the energy side, but we did see fairly robust activity there across the market. Health care and pharma was down a little bit, which wasn't surprising. I mean, certainly, pharma is top of everybody's mind as we're all racing to find a -- finding a cure, find a -- dealing with the virus. But at the same time, because of that, you have so many other, whether they're general elective surgeries or other drugs or things that aren't getting the same level of attention right now. So health care is under a bit of pressure right now, in general and this was a special topic that we've talked about, I think, last quarter, the quarter before on what we were seeing there, and it was a concern. That continued to be a concern as we go forward. Telecom and media, it's surprising on the media side, especially with everybody sitting at home, watching TV, and binge watching, we're seeing lots of cinemas in that space kind of decline, Hollywood and others have certainly delayed, big movie releases, et cetera. So a tremendous amount of pressure in different segments of that industry. And again, that industry was down almost 34% on a quarter-over-quarter basis. And that's against a pretty healthy ACV that we have there. So there continues to be concern with telecom and media as well from an overall perspective. Kathy, again, anything you want to add on sort of from an Americas perspective, since it's such a big part of the market just on the different industry awards?

I think it holds true, what you're saying, across the globe. I think retail has to sit back and pivot and think about how they react to a new consumer market. Some areas of retail, obviously were up because of the consumer package goods and then others in terms of traditional retail were down. But I think they wish to sit back and think about how to react to the post-COVID or the COVID world. I think we've seen a lot of movement in the insurance industries. I think that is just because they're thinking, okay, this is now the time for us to really push forward our transformational activities. I think a lot of industries are really just using the current market situation to say how can we really future proof ourselves in a time that has given us a lot of areas to go after. The smaller deals, I think, are indicative of them really doing focused types of activity to further solidify their position and to just move forward with their transformation.

Great. Thanks, Kathy. Operator, I think there's another one queued up. Excellent. I've got a question online that's come in. And let me direct this first one that's come in to Dave. So the question is, can you help us with your view of what enterprise spending environment looks like? Are we able to get big deals over the line? And how do we see that playing out for the rest of the year and into 2021? Dave, can you give -- just give us a perspective on what we're doing and what others are doing to continue the negotiations and get deals over the line during this period of sort of work from home and how we've all kind of adapted to the virtual model?

Sorry, Steve, trying to get off mute and having problems with that. Yes, I think deals continue to move forward. Early on in the year, we were concerned whether deal flow would slow down. And whether the duration of deals would extend due to having to perform transactions from a remote point of view. And quite frankly, we haven't found that to be the case. Certainly, we have a playbook for how to run transactions throughout the deal life cycle from a remote point of view. And one of the things we're finding is back when people were traveling a lot, it was often hard to schedule meetings to collaborate and negotiate and all those sort of things. And these days, you know where to find your clients. They're going to be sitting at home. So it's a lot easier to actually schedule meetings, we're finding. So I think we're seeing a couple of things, deals are continuing to move forward. People are using deals either, a, to try to reduce their costs and consolidate their supply base as a part of reducing costs. But we're also seeing intelligent strategies where they're not just trying to reduce cost, to reduce -- to move dollars back to the enterprise, they're actually trying to reduce costs in order to invest it in the future. So taking some of the savings that come out of a transaction and reinvesting into these industry-specific digital transformations that we've been talking about today. So we do believe the deal flow will continue. We're starting to see a pickup in our own deal flow, particularly in the manufacturing space, and we haven't found the remote working situation to be problematic at all. Typically, the first meeting or 2 is a little bit of a struggle, but once you settle into how we want to conduct these meetings remotely and having people available, well, we're finding the collaboration to be quite strong. So we expect that to continue through the year and certainly into 2021.

Excellent. Thanks, Dave. And then Stanton, one more for you. What is the impact of moving to the public cloud on cybersecurity? And what are the broad cybersecurity issues that we should consider with the broader adoption of public cloud?

Yes, great question, Steve. So the -- there's an interesting -- there's a model called Zero Trust and it's really sort of gaining momentum in the market. And the idea is that for many years now, we've kind of treated security like a fortress. So you think about you're behind the castle walls and you're protecting that castle with walls and a moat and guards because everything was sort of inside that castle and think about that like your data center. That's kind of the way we have been protecting stuff. But now even pre-COVID with the explosion of apps and mobile devices that data, those workloads and applications don't really exist within that castle anymore. And now that they're all outside that castle, they can't really be trusted. The problem is that in the old model, everything inside the castle is trusted. So if something is breached, everything is at risk. So as companies start moving to public cloud, and as we talked about, we see that just dramatically accelerating both through the data and through our discussions with clients. And most of them adopting multiple clouds that means more and more workloads are existing and more and more cloud. So what's happening is from a cyber's perspective, it's applying the Zero Trust model, which says, don't trust anything, you have to verify everything. And no matter where that is, it needs to be secured at a workload level and even down to a data level. So it's a complete rethinking of what a security architecture looks like. And then that also have to layer on to how do you manage that. And that's why we think the -- on the services side, as I talked about, the kind of strategic services, the technical services and the managed services specifically, is going to be such a big area because this is a complete rethink of how we manage risk inside of organization. So it's an operational change. It's a technical change and it's a people change. And my view is we're really just getting started on this, and I think it's going to take a decade to make this transformation.

And Steve, if I can add on to that?

Absolutely, Dave.

Going back to the IoT subject. The challenge is growing exponentially. If you look at the number of IoT devices that are out there, over the next 5 years, depending on who you listen to, those are going to grow anywhere from 3 to 4 to 5 to 10x the number of devices. So the number of exposure points for cybersecurity is growing dramatically along with the technology that allows hackers get into it. So the spectrum of exposure is just huge, which greatly adds to the problem.

Yes. I agree. So Sumeet, let me turn it back over to you. Any more questions from your side? Sumeet, you may be on mute.

Apologies, it appears Sumeet has disconnected.

Okay. Any more questions in the queue, operator?

We do have one more question on the phone line from [ Prakash Agrawal ] from [ Recoup Capital ].

A question for all of you. With the state of real estate being so uncertain, and you talked about facilities management deals being down. So I just wondered if you have -- if you could just give some detail and color about facilities management and then if you have a forecast?

Well, I wish I had a crystal ball on this one. I think facilities management has been hit by a couple of big issues over the past year. Clearly, if you go back to the shared workspace and the WeWork model and everything else of last year and everything, that had a big impact on the market and also had lots of capacity issues kind of there. COVID and the lockdown on campuses and the renegotiations of leases and everything has also been a major issue. And clearly, with campuses closed and shared work facilities changing, there wasn't the high need for it. I think and this is probably -- we're still broiling up all the data. But anecdotally, I will say that lots of clients that we talk to that have big, big campuses and several of them from Facebook and Google have all been very vocal about what they want to do. And I'll turn this over to Kathy because Kathy actually lives in Silicon Valley and can give us a perspective on what's happening in the Valley as well. But what we're seeing is so many clients across the globe are saying they can probably work in a different work environment long term, not just work from home, but smaller workspaces, people in and out, A teams, B teams, working 2 days a week in one environment, 2 or 3 days a week in another. I think that's going to continue, and it may even be the way for the future, not only for millennials and Gen Z because of the freedom that, that provides, opening up -- open platforms for talent and the gig economy and that -- what that applies, but just the safety concerns and facilities management organizations are going to fill that for some time. Kathy, I know you're deeply ingrained in this because you live in the Valley and you personally know this space well. Any insights you can share?

Yes. I mean, what we're hearing and seeing out here is that they keep pushing back reopening office dates. And when you look at the reopening of office dates, it's really a percentage of employees. So 10% will be back in the first quarter. Well, that was something that was going to happen in the second quarter then the third quarter. So everything gets pushed a quarter, and it's a small percentage of people. Offices are open, but they're open for a very limited amount of people, depending on the type of work that they do. And so therefore, the facilities management required is much smaller. So they're skeleton crews to make sure there's security on the campus but nowhere near the need for the amount of people you would have if you're managing a 50,000 person campus, full activity. So we keep hearing that they're pushing back the dates for reopening. And when they do reopen, it's a very small percentage of people. Most companies are offering options for work at home into the future. So really rethinking their footprints overall in terms of offices and the need to have large communities on-site every day. So I think I would watch this space to see what happens, some interesting things. There's a giant new Facebook office I could almost see from where I live that is just empty. They haven't even opened it yet. So interesting, but I think that we're going to continue to just gyrate a little bit in this area, but I don't ever expect it to go back to full capacity, at least not in the next years to come, which is great for traffic.

Great. Thanks, Kathy.

Yes, absolutely. Yes. Our thinking is that the longer the pandemic last the longer -- I mean, the harder it will be for facilities management to come back.

Yes. I think we tend to agree. Well, with that, let me thank everybody. And Kathy, you want to give us closing remarks?

Absolutely. I'd like to thank Sumeet and the team at Goldman Sachs for hosting the call today and to everyone in the audience for making the time to join and for all the really great questions. So far, 2020 has really been an eventful year on many fronts. Whatever surprises awaits us in the market before the year-end, we'll have them documented and charted. And we'll absolutely be reading those out to you in the first quarter. So our fourth quarter ISG call will be on January 12. We'll be in touch with you as always, on how to register for it. And as our economies continue to reopen, wear your mask, we need to defeat this virus. But thanks, everybody. Have a great day.

Great. Thank you all.

And this concludes today's conference. Thank you for your participation, and you may now disconnect.