Gartner Says a Quarter of Software Sales to Go SaaS By 2011

Published: October 11, 2006

by Timothy Prickett Morgan

The analysts at Gartner have been playing with their crystal balls again, and they have looked into the future and see lots and lots of companies will be renting their software as a service rather than acquiring license fees.

Gartner hosted its Symposium/ITexpo event in Orlando, Florida, last week and one of the highlighted prognostications the IT market researcher threw out to the audience is that by 2011, 25 percent of all new licenses to application software for running businesses will be acquired under a Software as a Service, or SaaS, model.

Gartner's definition of SaaS is this: one set of code that has common data definitions that is sold to many customers at the same time on a pay-per-use or subscription basis that is keyed to usage in some way. Gartner reckons that about 5 percent of business software sales in 2005 came through SaaS pricing.

"As SaaS became a viable delivery model from 2000 to 2003, most providers supplied 'good enough' functionality with core configuration capabilities," explained Robert DeSisto, a research vice president at Gartner. "SaaS and solving business complexity were two phrases not associated with each other. The trend has clearly begun to change. For example, SaaS providers are enhancing their software functionality and improving the ease with which companies can customize and more uniquely configure SaaS software to meet business requirements."

DeSisto says that SaaS deals have been done largely by business line managers, not by the central IT organizations. It is probably safe to say that SaaS deals have been done to circumvent the central IT organizations, but Gartner stopped short of saying that. DeSisto argues that IT managers have to be involved in the debate over SaaS versus other means of acquiring software. (To see more on Gartner's thinking about SaaS, you can buy a report called "On Premise Software Will Be Challenged By SaaS Software Delivery", which the company released last week.