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Gartner Finds SaaS Market to Hit $19.3 Billion by 2011
[March 07, 2007]

Gartner Finds SaaS Market to Hit $19.3 Billion by 2011


TMCnet Contributing Editor
 

The worldwide SaaS (News - Alert) market reached $6.3 billion in 2006 and is forecast to grow to $19.3 billion by year-end 2011, according to Gartner, Inc.



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 (News - Alert).


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.

SaaS is a "manifestation of the increasing maturation of software development, deployment and management," Gartner officials say. Pring added that this change will have "many profound consequences on the types of IT services that are sourced by enterprises and the types that can be profitably delivered by suppliers, the most profound is that, as some IT services come to resemble manufacturing, they will have a similar development curve as most manufacturing businesses had during the last quarter of a century -- wide movement overseas to lower-cost production centers and overall price deflation."

Although the SaaS market is still small, Gartner analysts said the scale of change that SaaS will produce requires providers to keep ahead of the SaaS wave. To do this they recommend, among other options, to use products built on next-generation Web services, SOAs and highly automated server farms to produce "multitenant, mass-customizable products that facilitate agility while sustaining uniqueness at a reduced cost."

Last September Gartner released a major report on human resources business process outsourcing, a large component of the overall worldwide BPO market. Gartner sees worldwide HR BPO reaching $24.6 billion in 2006, an increase of 4.7 percent from $23.5 billion in 2005.

Gartner says the HR BPO market "reached a crossroad" in 2006, as some vendors struggle with profitability and retrench to improve their bottom-line results.

Nevertheless, the analyst firm expects the overall worldwide BPO market to reach $134.7 billion in 2006, an increase of 8.3 percent over 2005.

David Sims is a contributing editor for TMCnet. For more articles please visit David Sims' columnist page.


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