Special report: SaaS set for major boom, says Gartner

With Software as a Service revenue set to soar 21 percent in 2007, Gartner is predicting big things for SaaS and its "varied line-up" of providers. Gartner research director Sharon Mertz surveys the SaaS sector.

By Stuart Lauchlan, news and analysis editor

Stand by for the year of Software as a Service (SaaS) as the model outstrips the growth rates of the traditional enterprise applications market.

According to Gartner Group, worldwide SaaS revenue will surpass $5.1 billion which represents a 21 percent growth over 2006 revenues and will reach $11.5 billion in 2011. "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," says research director, Sharon Mertz.

“SaaS is more of an option now. 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."

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. "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," explains Mertz.

Varied line-up

While CRM and salesforce automation have been at the forefront of the SaaS movement, Gartner looked at its encroachment into other functional areas, such as digital content creation and office suites; enterprise resource planning (ERP); and supply chain management (SCM). SaaS is also showing up in emerging areas such as compliance, risk management, office administration, procurement optimisation and small integrated business systems.

Gartner found that take-up rates varied significantly according to functional area. In enterprise content management and search, SaaS adoption is in the range of one percent to two percent of total software spending but within e-learning and Web conferencing, SaaS accounts for more than 60 percent and 70 percent of total market revenue.

Mertz observes that SaaS fits particularly well in applications involving the web, salesforce automation and CRM "where the processes are repeatable" such as the collection of customer data and sales pipeline management, but less well in manufacturing and operations. "SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams."

Vendor-wise, Gartner says there is a highly-varied line up of providers, ranging from pureplays like Salesforce.com to companies such as Oracle where SaaS is simply part of a wider set of offerings. "The mix [of SaaS revenue generation] varies depending on the application market," says Mertz. "There's a lot of people in the game right now.”

But SaaS will not spell the end for traditional on premise deployments. "One of the examples that we have is a large multi-national corporation where you have your corporate sales forces on on-premises software application,” adds Mertz. “But if they are expanding geographically it may just be much more expedient and make more sense for instance to have ten sales people sitting in your new Singapore salesforce working on a [salesforce automation based] a software as a service application."

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