Worldwide Software-as-a-Service (SaaS) revenue in the enterprise application markets is on pace to surpass USD 6.4 billion in 2008, a 27% increase from 2007 revenue of USD 5.1 billion, according to Gartner. SaaS revenue is expected to reach USD 14.8 billion in 2012.
Gartner analysts mark that the adoption of SaaS is growing and evolving within the enterprise application markets as new entrants challenge incumbents, popularity increases and interest for platform as a service grows.
"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.
Chris Pang, principal analyst Gartner mentions the importance of differentiating SaaS from hosting or application management or application outsourcing. Pang adds that, "Because the SaaS/on-demand market is 'hot', many suppliers are rebranding their hosting or application management or application outsourcing capabilities as SaaS/on-demand. The core proposition behind SaaS/on-demand is the delivery of multi-tenant service from a remote location over an Internet Protocol (IP) network via a subscription-based outsourcing contract."
Some of the key industry trends that contribute to the rapid growth of SaaS globally include businesses examining ways to reduce their IT capital expenditure budget, the increased availability of broadband which extends the viability of web-based service solutions globally and the demand from businesses to rapidly implement software which supports a specific business need.
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 (CAGR) from 2007 through 2012, with a total SaaS revenue reaching USD 1.9 billion in 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. These offerings will coexist with traditional office products, such as Microsoft Office and complement the way individuals work today.
The Content, Communications and Collaboration (CCC) markets remains the largest contributor to the overall SaaS enterprise application markets with revenue exceeding USD 2.1 billion in 2008, and it's expected to amount to USD 4.7 billion in 2012. It also shows the widest disparity of SaaS revenue generation, with SaaS representing 2 to 3 % of Enterprise Content Management (ECM) and more than 70% of web conferencing in 2007.
"Before IT leaders embark into deploying SaaS, they need to determine where SaaS is most appropriate and advantageous within the organization's overall sourcing and applications strategy. It's also important that they identify the costs incurred with a SaaS solution to establish whether SaaS is the better choice," concluded Pang.
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