Enterprise SaaS market hit $9.2bn in 2010

Enterprise spending on hosted software increased by 15 per cent to $9.2bn this year as the industry pulled well clear of the recession, according to analyst firm Gartner.

Spending will continue to rise as security concerns about hosted software fade, said the analyst, which estimates that the market will be worth $10.7bn in 2011.

"Initial concerns about security, response time and service availability have diminished for many organisations as SaaS business and computing models have matured and adoption has become more widespread," said Sharon Mertz, research director at Gartner.

"Usage and vendors' on-demand ecosystems continue to evolve to provide additional business and technology services, more vertical-specific functionality, and stronger communities of partners and buyers."

Mertz added that increasingly the decision to invest was coming from company executives, with the acquiescence of the IT department. This meeting of minds has led to perhaps larger investments than were first planned, she said.

"There is increasing involvement from executives in purchasing decisions, as well as greater participation from IT in the purchase process due to larger deals, the expanding footprint of SaaS in the organisation and a higher requirement for downstream integration as SaaS becomes incorporated in the enterprise business process," she explained.

The three Cs – content, communications and collaboration – dominate the enterprise SaaS market, according to Gartner, and often SaaS takes social media sites such as Facebook and Twitter into its fold.

This 'CCC market' could be worth as much as $2.9bn this year, Gartner said, making it the most valuable part of the hosted software sector.

Customer relationship management tools make up the second-biggest SaaS market, worth $2.6bn.

Mertz added that while SaaS was growing in popularity, this progress could be jeopardised by vendors muddying the water by pitching their outsourced services as hosted or cloud options.

"Suppliers run the risk of confusing and antagonising buyers if they persist in this approach," she said.

"Organisations run the risk of getting nasty shocks when the thing they thought they were buying turns out to be something altogether different. Hosting and application management are not synonymous with SaaS, nor do they necessarily comply with the definition of cloud computing."