GARTNER: SaaS Revenue in Enterprise Application Software Market to Grow 21% 2007

August 9, 2007; 06:24 AM
Worldwide total software revenue for software as a service (SaaS) within the enterprise software markets is projected to surpass $5.1 billion in 2007, a 21 percent increase from 2006 revenue, according to Gartner, Inc. The market is poised for strong growth through 2011, when worldwide revenue will reach $11.5 billion.

Gartner analysts said adoption of SaaS varies widely across software markets, contributing as little as 1 percent of total software revenuein some markets and more than 75 percent in others. For example, in enterprise content management (ECM) and search, SaaS adoption is in the range of 1 percent to 2 percent of total software spending. Within e-learning and Web conferencing, SaaS accounts for more than 60 percentand 70 percent of total market revenue.

“SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams,” said Sharon Mertz, research director at Gartner. “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.”

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, such as application development and project and portfolio management (PPM); data management and integration; and IT operations software. Enterprise application software markets included in the forecast are content, communication and collaboration; CRM, digital content creation and office suites; enterprise resource planning (ERP); and supply chain management (SCM).

SaaS offerings are gaining market presence in emerging areas, such as compliance, risk management, office administration, sales and service automation, procurement optimization, and small integrated business systems, in which their multitenant networked architecture offers advantages such as speed of deployment, ease of use and embeddedservice management.

Although SaaS as a percentage of total software revenue is expected to grow in most markets, other major forces will also impact market development during the forecast period, acting as either proponents or deterrents to growth.

“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,” Ms. Mertz said. “Small and midsize businesses that have insufficient resources to convert their applications will also find SaaS an attractive 21st-century solution to their legacy systems.”

Additional information is available in the Gartner report “SaaS Demand Set to Outpace Enterprise Application Software Market Growth.” Thereport is available on Gartner’s Web site at www.gartner.com/DisplayDocument?ref=g_search&id=511413&subref=simplesearch.

About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 3,800 associates, including 1,200 research analysts and consultants in 75 countries. For more information, visit www.gartner.com.