SaaS Revenue Poised To Double Within 5 YearsSaaS Revenue Poised To Double Within 5 Years

Business may have concerns about letting vital business data move offsite, but those concerns aren't stopping the SaaS market from growing by leaps and bounds according to a new report. And more big name vendors, such as IBM, are jumping on the SaaS bandwagon.Worldwide SaaS revenue in the enterprise application market will exceed $6.4 billion in the 2008 up 27 percent from the 2007 revenue. Moreover, according to a new Gartner report, the strong growth is expected to continue with the total SaaS revenue expected to get within shouting distance of $15 billion by 2012.

Unfortunately, Garner doesn't break out a prediction for the small and midsize SaaS market. Yet, given the broad access that small and midsize companies have to SaaS offerings, a distinct shift from on-premises enterprise software that was often too expensive or unwieldy for smaller companies to purchase, install, or manage, the SMB segmentation of the SaaS market is likely to be segmented.

As to why SaaS has moved from feeble toehold to booming growth projections, Gartner research director Sharon Metz sees it resulting from waning concern over perceived SaaS liabilities. "The popularity of the on-demand deployment model has increased significantly within the last four years," she said. "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."

Two SaaS markets with the biggest growth are office suites and digital content creation. Garner project revenue for SaaS office suites will reach $1.9 billion in 2012. Though the report predicts that SaaS offerings and free apps such as Zoho, ThinkFree, Adobe Buzzword, and Google Apps and will take an almost 10 percent share of the market by 2012, they don't see it supplanting traditional office suites -- meaning Microsoft Office.

That may be because established vendors, including Microsoft are moving to embrace SaaS. Microsoft now offers Exchange Online and IBM has just announced a SaaS version of Lotus Notes Domino for $8 to $18 per user per month.

The Fortune 500 brand names are not alone in moving to on-demand models. Rackspace, for instance, is now offering hosting in the cloud, announced in concert with the acquisition of Slicehost and Jungle Disk as well as a new relationship with Limelight Networks. In a statement that echoed Gartner's claim of synergies between on-demand and traditional software, Rackspace CEO Lanham Napier said, "Cloud computing offers tremendous benefits to our customers that complement our traditional managed hosting services. Being a leader in hosting means being a leader in the cloud."

Put another way, no vendor can afford not invest in on-demand offerings and that means growth.

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