08/09/2007

Worldwide total software revenue for software as a service (SaaS) within the enterprise software markets is projected to surpass $5.1 billion in 2007, a 21 percent increase from 2006 revenue, according to Gartner, Inc. The market is poised for strong growth through 2011, when worldwide revenue will reach $11.5 billion.

ebizQ received the following details:

Gartner analysts said adoption of SaaS varies widely across software markets, contributing as little as 1 percent of total software revenue in some markets and more than 75 percent in others. For example, in enterprise content management (ECM) 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,” said Sharon Mertz, research director at 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, such as application development and project and portfolio management (PPM); data management and integration; and IT operations software. Enterprise application software markets included in the forecast are content, communication and collaboration; CRM, digital content creation and office suites; enterprise resource planning (ERP); and supply chain management (SCM).

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 multitenant 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.

“Major on-premises software vendors are re-architecting their application stacks to service-oriented architectures. Their customers will invest in migration for those processes that are complex or proprietary, but they also have an opportunity at this juncture to evaluate whether SaaS is an appropriate alternative for other aspects of their business,” Ms. Mertz said. “Small and midsize businesses that have insufficient resources to convert their applications will also find SaaS an attractive 21st-century solution to their legacy systems.”