Gartner: SaaS is Hot, Revenue Will Keep Rising 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. By 2012, Gartner estimates that Web-based freeware such as Google Apps, Adobe Buzzword, ThinkFree, Zoho and SaaS offerings will account for 9% market share of total software revenue. Traditional office products like Microsoft Office will not go away by then. Gartner forecasts that the revenue attributed to SaaS in DCC market will be 96.1% compound annual growth rate from 2007 through 2012. “DCC software is becoming increasingly important as organizations evolve toward a more Web-centric business model. Consumer decisions and confidence control the mainstream flow of the segment and future development of SaaS in this market will depend on internet broadband capacity,” said Mertz. The content, communications and collaboration (CCC) markets remains the largest contributors to the overall SaaS enterprise application markets with revenue exceeding US$ 2.1 billion in 2008, and it is expected to amount to US$ 4.7 billion in 2012. However, there is a wide disparity in SaaS revenue generation. In the enterprise content management (ECM), for example, SaaS represents 2%-3%, while in Web conferencing it is more than 70%. The second largest contributor to the overall SaaS enterprise application markets is customer relationship management (CRM). In 2008, SaaS within the CRM industry is expected to exceed US$ 1.7 billion in total software revenue. Gartner expects CRM SaaS revenue to exceed US$ 3.2 billion in total software revenue in 2012. Want a full picture? Check out Gartner’s “Market Trends: Software as a Service, Worldwide, 2007-2012.” Looks like the SaaS future couldn’t be brighter. If you’re about to jump on the SaaS train just based on these future trends, be mindful of many different factors that go into a decision-making process. As with all other IT deployments, it helps to first determine if SaaS is the right fit for your organization and strategy. Creativity and caution with SaaS is still encouraged.