SaaS Sales Up Smartly Despite (or Because Of) the Economy
November 30, 2009 Timothy Prickett Morgan
Buying applications and raw infrastructure as a service is getting a push globally thanks to the maturation of software and networking technologies (particularly improved Web interfaces and low-cost, high-speed Internet access) and a pull from companies who are trying to cut costs and only pay for what they use.
According to a recent report from Gartner, the company’s market wizards expect that global software as a service (SaaS) sales will grow by 17.7 percent this year, to $7.5 billion. This market is a lot more than just Salesforce.com.
“The adoption of SaaS continues to grow and evolve within the enterprise application markets,” explained Sharon Mertz, a research director at Gartner who put together the SaaS sales projections. “The composition of the worldwide SaaS landscape is evolving as vendors continue to extend regionally, increase penetration within existing accounts and ‘greenfield’ opportunities, and offer more vertical-specific solutions as part of their service portfolio or through partners.”
The push in conjunction with partners has apparently been a key factor in driving growth. It is a lot easier for a software vendor and its partners to push a service with a set cost per user than a solution with a big upfront cost and financing headaches. No one wants to use cash for anything if they can avoid it.
The biggest chunk of SaaS sales is the content, communications, and collaboration segment, as you can see from the table below, followed up by customer relationship management software.
The share of total SaaS sales for the CCC segment is expected to stay the same in 2009–34 percent of the pie–as it was in 2008, but CRM will grow a tiny bit to attain a 30 percent share of the SaaS pie in 2009. Perhaps the more interesting trend to watch is the penetration of SaaS offerings in the overall CRM space. Gartner says that in 2005, SaaS-based CRM software represented under $500 million in sales and just a bit more than 8 percent of overall CRM software sales. But by 2008, SaaS-based CRM sales were just under $1.9 billion and garnered more than 20 percent of the share of total CRM software sales.
As you can see from the table above, companies seem to be a lot more comfortable getting SaaS versions of CRM, supply chain, and collaboration software than they are relying on SaaS vendors for ERP software. SaaS-based ERP sales are only expected to grow by 5.4 percent in 2009, to $1.23 billion. As the comfort level with SaaS rises, and if the economy continues to be weak and ERP vendors get their SaaS acts together, you can bet that ERP is going to grow a lot more quickly than it has been. If you want to find out more about what Gartner thinks about the SaaS space, check out its report, called Market Trends: Software as a Service, Worldwide, 2008-2013, Update, at this link.