Gartner: SaaS is Hot, Revenue Will Keep Rising

By Irina Guseva (@irina_guseva) Oct 28, 2008

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If you were worried about the present and future of SaaS — Gartner says don't be. Worldwide Software-as-a-Service (SaaS) revenue in the enterprise application markets is going strong.

Gartner predicts it will surpass US$ 6.4 billion in 2008, a 27% increase from 2007 revenue. Moreover, the market is expected to more than double with SaaS revenue reaching US$ 14.8 billion in 2012.

Despite the slumping worldwide economy, the adoption of SaaS is growing and evolving in the enterprise markets. What’s happening you ask? The newbies are challenging the incumbents, SaaS popularity is increasing, and everyone is looking for ways to save money, so the interest for platform as a service grows.

Things seem to be going well in the SaaS market. “The popularity of the on-demand deployment model has increased significantly within the last four years. Initial concerns over security, response time, and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become pervasive,” said Sharon Mertz, research director at Gartner.

SaaS According to Gartner

Let’s pause here for a minute and look at how Gartner defines
SaaS, in case you had any hesitations. SaaS is “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.”

In other words, we are only looking here at enterprise application software markets that are content, communication and collaboration (CCC); customer relationship management (CRM); digital content creation (DCC); office suites; enterprise resource planning (ERP); and supply chain management (SCM). Covers pretty much all of it, doesn’t it?

My SaaS is Not Your SaaS

SaaS can come in all kinds of shapes and forms. “It is important to differentiate SaaS from hosting or application management or application outsourcing,” said Chris Pang, principal analyst at Gartner.

Due to the fact that SaaS/on-demand market is red hot, many vendors started rebranding their hosting, application management and application outsourcing capabilities as SaaS/on-demand.

Clearly, everyone wants a piece of SaaS nowadays. However, as Gartner notes, it is important to keep in mind that the true SaaS/on-demand is comprised of the following:

Delivery of multi-tenant service
From a remote location
Over an internet protocol (IP) network
Via a subscription-based outsourcing contract

Future SaaS Trends

The rapid growth of SaaS can be attributed to organizations looking for ways to reduce their IT CapEx budgets and to (hopefully) quickly deploy software. Thank goodness broadband connections are now available pretty much everywhere on the planet, so SaaS doesn’t seem as a distant dream anymore.

However, not all markets are equally enamored by SaaS. The fastest-growing markets for SaaS are office suites and digital content creation (DCC), albeit from small bases.

Gartner estimates that the revenue attributed to SaaS within the office suites market will reach 99.2% compound annual growth rate from 2007 through 2012. The total SaaS revenue will reach US$ 1.9 billion by 2012.