Gartner Says Software as a Service to Break $11.5 Billion by 2011

Published: August 20, 2007

by Timothy Prickett Morgan

With the cost of managing infrastructure and maintaining applications far exceeding the initial costs of systems and applications, and with the ubiquity and low-cost of Internet connectivity, it is no wonder that the market for software as a service, or SaaS as it is sometimes called, is not growing significantly.

According to market research estimates made by the IT analysts at Gartner, the worldwide market for software sold as an online service hit $4.2 billion in 2006, and is expected to grow 21 percent to $5.1 billion this year. Gartner is projecting that SaaS sales will more than double between now and 2011, when sales are expected to hit $11.5 billion.

While that may sound like a lot of money, companies around the world spend, in aggregate, hundreds of billions of dollars per year for software, so SaaS is a drop in the bucket compared to this ocean of money. But in certain markets, SaaS represents a big portion of software sales, and that may portend something for the future.

"SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams," explains Sharon Mertz, a research director at Gartner who tracks the SaaS market. "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's analysis shows that SaaS-based e-learning software accounts for 60 percent of the total market, and SaaS has a 70 percent share of software sales for Web conferencing, too. On the other end of the spectrum, enterprise content management and Web search only account for 1 percent to 2 percent of overall sales of software in these two categories. And while salesforce automation sure got a shot in the arm thanks to Salesforce.com and its SaaS-only product, it remains to be seen if enterprises will shift their core ERP applications to a SaaS model. Companies are just too nervous about security issues and downtime, and moreover, it is nearly impossible to get an IT department to obsolete itself even if you can get the IT staff to recommend a SaaS-style application here and there.

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