SaaS revenue projections, mega trends in 2009

Software as a service (SaaS) is forecast to reach $8 billion in sales in 2009, a 21.9 percent increase from 2008 revenue of $6.6 billion, according to a recent report from Gartner, Inc., and will experience a 19.4 percent compound annual growth rate through 2013. In a challenging economy, SaaS represents a leaner alternative, but it will continue to change and evolve within Platform as a Service (PaaS) strategies that companies like Microsoft and IBM are developing. These strategies will invite developers and integrate SaaS with their software. And there may be a Cloud on the horizon.

SaaS adoption is strong in select markets, but it has limited potential in other markets and subsegments. Segments of the SaaS market that will drive growth for the next three years include procurement, human capital management, and customer relations management, Gartner reports. SaaS accounted for more than 18 percent of the customer relations management market overall in 2008.

Perception of SaaS has changed. Greater competition and focus by megavendors reinforce the legitimacy of on-demand solutions, according to Sharon Mertz, research director at Gartner. "Many enterprises are further encouraged by the fact that with SaaS, responsibility for continuous operation backups, updates and infrastructure maintenance shift risk and resource requirements from internal IT to vendors or service providers," she said.

Market researcher IDC projects an even higher rate of growth for SaaS - 40.5 percent over 2008 due in part to the cost advantage at least in the short run of Saas. "Buyers are more interested in the easy-to use subscription services which meter current use and vendors will look for new products and recurring revenue streams," IDC reports.

"SaaS services have benefited by the perception that they are tactical fixes, which allow for relatively easy expansions during hard times," according to Robert Mahowald, director of On-Demand and SaaS research at IDC in a recent report entitled Economic Crisis Response: Worldwide Software as a Service Forecast Update.

IDC says that SaaS growth could be constrained by the cash flow problems of potential clients who also have difficulty finding credit to scale up.

The Gartner report says that several factors that can impede adoption of SaaS, include: concerns about data security, a perceived lack of competitive differentiation, increasing concerns about scalability, questions about vendor longevity, and the fact that existing investments in applications capital and organizational expertise limit SaaS growth.

Platform as a Service

Intuit, which initiated its Platform as a Service (PaaS), the Intuit Partner Platform, just one year ago, is one example of the rapidly changing landscape for SaaS. Within weeks of its acquisition of PayCycle for $170 million, it announced on June 3 that the Partner Platform will support third party development.

The Intuit Partner Web site gets right to the point. Through the Platform, SaaS providers and developers will be able to sell to millions of businesses already using Intuit's Quickbooks program and "Federate" existing SaaS applications. The Platform will permit users to:

  • Rapidly build and deploy rich SaaS applications capable of seamless integration with QuickBooks data.
  • Federate existing SaaS applications.
  • Reach a potential market of nearly 25 million users within the 4 million small businesses using QuickBooks.

And Tim Berry, writing for smallbusiness.com, sees SaaS developers, large and small, everywhere. "Not just big companies in India working with big companies in the U.S., but individual programmers all over the world contracting with companies of every size, also all over the world."

SaaS and Cloud Computing

Bloggers debate whether SaaS applications will evolve on their own or whether new development will "leapfrog" SaaS into the new world of PaaS/Cloud computing. One view, expressed by Chris Morace, Jive Software's senior vice president, is that, "Multi tenancy SaaS is too limited. The idea of a federated hybrid cloud approach will enable flexibility in the deployment.... I think the enterprise will adopt around virtualized clouds."

Andre Conry-Murray disagrees. In an informationweek.com post, he writes that Salesforce.com, Workday, and others have demonstrated that enterprises will adopt SaaS, despite concerns over security and privacy. He asks "whether the architectural differences between SaaS and the Cloud will affect SaaS vendors in the future if private/public federation catches on," but questions if they will catch on.

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