Worldwide ‘Software as a Service’ revenue forecast to grow 21% in 2011

Worldwide software as a service (SaaS) revenue is forecast to reach $12.1 billion in 2011, a 20.7 per cent increase from 2010 revenue of $10 billion, according to Gartner, Inc. The SaaS-based delivery will experience healthy growth through 2015, when worldwide revenue is projected to reach $21.3 billion.

Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. The provider delivers an application based on a single set of common code and data definitions, which is consumed in a one-to-many model by all contracted customers anytime on a pay-for-use basis, or as a subscription based on use metrics.

“After more than a decade of use, adoption of SaaS continues to grow and evolve within the enterprise application markets,” said Tom Eid, Research Vice President at Gartner. “This is occurring as tighter capital budgets demand leaner alternatives, popularity and familiarity with the model increases, and interest in platform as a service (PaaS) and cloud computing grows.”

“Initial concerns about security, response time and service availability have diminished for many organisations as SaaS business and computing models have matured and adoption has become more widespread,” Eid said. “Usage and vendors’ on-demand ecosystems continue to evolve to provide additional business and technology services, more vertical-specific functionality, and stronger communities of partners and buyers.”

During the past two years, the significant industry buzz surrounding SaaS and other off-premises models has shifted to cloud computing. Cloud computing is a broad concept, of which SaaS is only one variation, representing the application layer of the overall cloud architectural stack.

However, SaaS has been a lead indicator of the cloud concept for some time. Gartner estimates that 75 per cent of current SaaS delivery, as measured by revenue, could be regarded as cloud services, and this could exceed 90 per cent by 2015 as the SaaS model matures and converges with cloud service models.

Customer relationship management (CRM) continues to be the largest market for SaaS. SaaS revenue within the CRM market is forecast to reach $3.8 billion in 2011, up from $3.2 billion in 2010. Gartner expects SaaS to represent nearly 32 per cent of the CRM market’s total software revenue in 2011.

“The market landscape for on-demand CRM continues to evolve and mature as the availability and use of SaaS solutions become more pervasive,” Eid said. “Greater market competition and increased focus on megavendors reinforce the legitimacy of on-demand solutions, mitigating initial objections about security and availability for many, as acceptance of SaaS as a viable model for enterprise computing services grows.”

SaaS revenue within the content, communications and collaboration (CCC) market is on pace to surpass $3.3 billion in 2011, up from $2.8 billion in 2010. The CCC market continues to show the widest disparity of SaaS revenue generation, with SaaS representing just 5 per cent of enterprise content management (ECM) in 2010 but approximately 83 per cent of Web conferencing.

The proportion of enterprise resource planning (ERP) revenue attributed to SaaS overall is still in the single digits, at approximately 7 per cent of the overall ERP market. ERP SaaS offerings contributed approximately $1.5 billion to the SaaS market in 2010, and by year-end 2011, Gartner expects this to increase to $1.7 billion.

The penetration of SaaS within ERP varies greatly between subsegments, with human capital management (HCM) being the most penetrated (in terms of adoptions and revenue growth) and enterprise asset management (EAM) and manufacturing being relatively unaffected by SaaS.