Gartner claims SaaS is on the climb

Users are moving away from buying business software in traditional packaged applications and are looking at buying it as a service, analyst firm Gartner claimed this month.

While software as a service (SaaS) represented just 5% of business software revenue worldwide in 2005, Gartner believes that by 2011 around 25% of new business software will be delivered in the SaaS format.

SaaS is defined by Gartner as hosted software, which users can pay for according to actual usage or by some form of subscription.

“As SaaS became a viable delivery model from 2000 to 2003, most providers supplied ‘good enough’ functionality with core configuration capabilities.

SaaS and solving business complexity were two phrases not associated with each other,” said Robert DeSisto, research vice president for Gartner.

“The trend has clearly begun to change. For example, SaaS providers are enhancing their software functionality and improving the ease with which companies can customise and more uniquely configure SaaS software to meet business requirements,” DeSisto explained.

According to Gartner’s figures the success of the SaaS software delivery models has varied considerably according to different market segments.

It accounted for 8% of customer relationship management (CRM) software revenue in 2005 and Gartner estimates that by 2006 this figure will reach 12%.

But in other sectors such as enterprise resource planning (ERP) and the supply chain management (SCM) segments, it has less than 4% adoption of the market.

“The majority of SaaS deployments continued to be focused in individual departmental initiatives, such as sales force automation, except in small to medium-sized businesses (SMBs),” said DeSisto.

“In SMBs, we are beginning to see vendors provide capabilities to support more end-to-end processes, such as opportunity to order and in integration as a service where companies are already using SaaS for large projects.”

“However, no provider offers the functionality capability or process management capabilities on par with on premise software to support end-to-end cross-departmental business flows,” he added.

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