SaaS Market Predicted To Grow By 22% This YearSaaS Market Predicted To Grow By 22% This Year

The global enterprise market for software as a service will rise by nearly 22% this year, as companies turn to hosted applications to reduce capital costs during the economic downturn, a market research firm says.

SaaS revenue will reach $9.6 billion from $6.6 billion in 2008, Gartner predicted. The market will show consistent growth through 2013, when worldwide revenue is expected to total $16 billion.

"The adoption of SaaS continues to grow and evolve within the enterprise application markets as tighter capital budgets in the current economic environment demand leaner alternatives, popularity increases, and interest for platform as a service and cloud computing grows,” Gartner analyst Sharon Mertz said in a recent statement.

While SaaS use has been rising for nearly a decade, its popularity has increased significantly over the last five years. Adoption has become more widespread, as SaaS business and computing models have matured, improving security response time and service availability.

Adoption is fastest among distributed workforce teams and within Web 2.0 initiatives, Gartner said. Office suites and digital content creation remain the fastest-growing segments.

Office suites are projected to total $512 million in 2009, up from $136 million in 2008, while DCC is forecast to total $126 million in 2009, up from $70 million in 2008. SaaS delivery of content, communications and collaboration applications continues to have the wides reach in the enterprise. Those applications will generate $2.5 billion this year, up from $2.16 billion last year,Gartner predicts.

The adoption of SaaS within enterprise resource planning and supply chain management varies based on process complexity, Gartner said. SaaS is expected to represent only about 1 percent of ERP manufacturing and operations revenue, but more than 18 percent of human capital management and 30 percent of the procurement segment by 2013.

Customer relationship management has seen more general market adoption to date, ranging between 9% and more than 33%, depending on the sub-segment. Overall, SaaS accounted for more than 18% of CRM's total market revenue last year.

Nevertheless, certain factors could impede SaaS adoption in the futures. Those factors include concerns over data security, a perceived lack of competitive differentiation, increasing concerns about scalability and questions about vendor longevity.

Gartner advises companies to look at the value of a SaaS implementation within an overall sourcing and applications strategy. The research firm also advises looking at the broader costs incurred withSaaS and when they will occur within the life cycle. "Identifying costs associated with the subscription, training, customization, integration or feature upgrades, and reviewing contractual terms carefully will enable organizations to determine whether SaaS is the better choice," Gartner said.