CRM will dominate SaaS market as it grows 20.7% this year: Gartner

Worldwide software as a service (SaaS) revenue is forecast to reach $12.1 billion in 2011, a 20.7% increase from last year’s $10 billion, market research firm Gartner said.

Nearly all of this revenue comes from companies as the research agency had put enterprise part of the SaaS market at $10 billion.

SaaS is so-called because, unlike traditional software that comes on CDs or downloads, SaaS software is not installed at the customer’s premise, but on the vendor’s data center. The customer, when he needs to use his software, logs into the vendor’s datacenter through the Internet and uses ‘his’ software.

A good example is Gmail, in the retail segment, and in the business software segment.

Within the SaaS market, the initial pioneer — Customer relationship management (CRM) services — continues to lead in revenues with $3.8 billion out of the $12.1 billion, followed by content, communications and collaboration (CCC) with $3.3 billion and ERP at $1.7 billion.

SaaS, starting out around 10 years ago, has rapidly become the most exciting transformation to hit the IT world, threatening traditional ‘packaged’ application vendors such as Microsoft, SAP and Oracle, while opening new vistas for ‘dotcoms’ like Google and Amazon. It also threatens the traditional ‘deployment cum maintenance’ model of Indian IT majors like Infosys and TCS as well.

Companies prefer to go SaaS as it costs a fraction what packaged software would cost them and doesn’t have big up-front costs either.

According to Gartner, 10% of the global spending on applications (not including operating systems and hardware) is now on SaaS model.

This will rise fast, it warned. “The SaaS-based delivery will experience healthy growth through 2015, when worldwide revenue is projected to reach $21.3 billion.”

SaaS is the top-most layer of the Cloud model. Cloud ecosystem includes the hardware, the middle-ware and operating systems, the software platforms and finally, the apps (SaaS).

At around $89 billion this year, Cloud (including SaaS) accounts for nearly 10% of the total enterprise IT market (excluding consumer IT and IT services.)

Gartner has predicted that the Cloud ecosystem as a whole will grow to $177 by 2015. Today, it predicted that SaaS itself will comprise around $21.3 billion of it.

“After more than a decade of use, adoption of SaaS continues to grow.. as tighter capital budgets demand leaner alternatives, popularity and familiarity with the model increases, and interest in platform as a service (PaaS) and cloud computing grows, said Tom Eid, research vice president at Gartner.

“Initial concerns about security, response time and service availability have diminished for many organizations,” he added.

Gartner pointed out that not all SaaS may be Cloud-based, as the software that is being remotely accessed may be deployed on a single computer or server at the vendor’s premise, instead of being deployed on a large cluster (cloud) of servers. It put the share of Cloud-powered SaaS at around 75% of the total revenues.

“This could exceed 90 percent by 2015 as the SaaS model matures and converges with cloud service models,” he pointed out.

Within the SaaS market, the initial pioneer — Customer relationship management (CRM) services — continues to lead in revenues with $3.8 billion out of the $12.1 billion, followed by content, communications and collaboration (CCC) with $3.3 billion.

The biggest impact of SaaS has been in the customer relationship management (or customer management software) market. Here, Gartner says, nearly 32 percent of the total market is already with SaaS vendors such as

It pointed out that in the content, communications and collaboration (CCC) market, SaaS represented just 5 percent of enterprise content management (ECM) in 2010 but approximately 83 percent of Web conferencing.

The biggest market in enterprise software — core enterprise or enterprise resource planning, the pan-company software — is yet to see a similar shift towards the cloud, though many vendors are trying hard. In India, for example, Chennai based Ramco systems has been offering a Cloud-based ERP for several years.

Unlike CRM, in ERP, the SaaS proportion is just 7%, partly because companies prefer the traditional packaged software products from biggies such as SAP and Oracle. This market contributes around $1.7 billion out of the total $12.1 billion in SaaS revenues this year.

“The penetration of SaaS within ERP varies greatly between subsegments, with human capital management (HCM) being the most penetrated (in terms of adoptions and revenue growth) and enterprise asset management (EAM) and manufacturing being relatively unaffected by SaaS,” it pointed out.


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