Worldwide SaaS to Hit $5.1 Billion in 2007, Gartner Says

By David Sims

TMCnet Contributing Editor

 

Worldwide total software revenue for software as a service (SaaS (News - Alert)) within the enterprise software markets is projected to surpass $5.1 billion in 2007, a 21 percent increase from 2006 revenue, according to a recent study from Gartner (News - Alert).

The market is poised for strong growth through to 2011, when worldwide revenue will reach $11.5 billion, the tech research firm believes. And Gartner analysts say adoption of SaaS varies widely across software markets, contributing as little as 1 percent of total software revenue in some markets and over 75 percent in others.

In enterprise content management and search, SaaS adoption is in the range of 1 percent to 2 percent of total software spending. Within e-learning and Web conferencing, SaaS accounts for more than 60 percent and 70 percent of total market revenue.


"SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams," says Sharon Mertz, research director of Gartner. "Ease of use, rapid deployment, limited upfront investment in capital and staffing, plus a reduction in software management responsibility, all make SaaS a desirable alternative to many on-premises solutions, and they will continue to act as drivers of growth."

Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. Gartner's forecast is focused on enterprise application software and does not include the infrastructure software markets.

Mertz says SaaS offerings are gaining market presence in emerging areas, such as compliance, risk management, office administration, sales and service automation, procurement optimization, and small integrated business systems, in which their multi-tenant networked architecture offers advantages such as speed of deployment, ease of use and embedded service management.

Although SaaS as a percentage of total software revenue is expected to grow in most markets, other major forces will also impact market development during the forecast period, acting as either proponents or deterrents to growth, she says.

In March Gartner released a report finding that "the worldwide SaaS market reached $6.3 billion in 2006 and is forecast to grow to $19.3 billion by year-end 2011."

SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics. The SaaS model is popular for CRM, among other technologies, such as human resources.

Why such success? "The dysfunction of the client/server era is driving alternative approaches to IT development, delivery and management, which SaaS is the most apparent version of," said Ben Pring, research vice president for Gartner.

SaaS adoption is broadening out from CRM and HR into new areas such as procurement and compliance management, Gartner has found. However, the scale of change involved in moving to a SaaS approach is proving hard for many vendors to manage. "Due to the law of large numbers, traditional IT product models are becoming victims of their own success, while the relative smallness of new approaches facilitates growth much more easily," said Pring.

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David Sims is a contributing editor for TMCnet. To see more of his articles, please visit his columnist page.