Gartner predicts strong interest in SaaS

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Hosted offerings are set to grow fast, analyst firm says

By Stuart Lauchlan | London | Monday, 20 August, 2007

Software as a service is forecast by Gartner to grow at 22.1% until 2011 for the aggregate enterprise application software markets — more than double the 9% growth rate expected in the market as a whole.

“By 2011, 63% of products in the software infrastructure market and 56% in the software application market will support web services and Web 2.0 technologies,” Gartner predicts.

“We limited the forecast to the enterprise application software market because SaaS is a very hot topic in the application markets and in some markets, it’s an absolutely common way to deploy software,” says Sharon Mertz, research director of customer relationship management at Gartner.

“SaaS is more of an option now,” she says. “People are considering it more often when they’re looking at different application solutions. [They’re] looking at it as their overall sourcing strategy — ‘is this right for me, or not?. It’s just a much more important element in the market as time goes on. A lot of the processes [in a SaaS application] are more streamlined. It’s more repeatable, [and the] software isn’t really specific to any one company’s business.”

But rates vary according to the sector. “The mix [of SaaS revenue generation] varies depending on the application market,” Mertz says. “SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams. 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.”

And the competitive landscape is also changing. Mertz warns that Microsoft will be a serious challenger with its hosted CRM Live, despite the protestations of the existing pure play market leaders.

But there are still inhibitors to SaaS take-up. “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,” says Mertz. “Small and medium-sized businesses that have insufficient resources to convert their applications will also find SaaS an attractive 21st-century solution to their legacy systems,” she says.