Software-as-a-service growth bucks recession

Software-as-a-service is proving to be a lucrative business

The software-as-a-service (SaaS) model is set to go from strength to strength, according to Gartner, which is predicting growth of 22 per cent this year.

The analyst firm said that SaaS revenues will total $9.6bn (£6.3bn) in 2009, a 21.9 per cent increase from 2008 revenues of $6.6bn (£4.3bn), and reach a staggering $16bn (£10.5bn) by 2013.

Office suites and digital content creation are the fastest growing SaaS markets, according to the report. The former is predicted to reach a value of $512m (£338m) this year, up from $136m (£90m) in 2008, while digital content creation is projected to total $126m (£83m) in 2009, up from $70m (£46m) in 2008.

However, the content, communications and collaboration market will continue to post the highest SaaS revenues, at $2.5bn (£1.6bn) in 2009, up from $2.16bn (£1.4bn) in 2008.

The main drivers for SaaS adoption continue to be ease of deployment, rapid return on investment, low upfront capital costs and a "decreased reliance on limited implementation resources", according to Sharon Mertz, research director at Gartner.

"Greater market competition and increased focus by the mega vendors is reinforcing the legitimacy of on-demand solutions," she said.

"Many enterprises are further encouraged by the fact that, with SaaS, responsibility for continuous operation, backups, updates and infrastructure maintenance shifts risk and resource requirements from internal IT to vendors or service providers."

However, Mertz warned that questions persist over data security, scalability and vendor longevity.

Gartner advised firms thinking about the SaaS model to carefully review contractual terms before deciding whether it is the best fit for their organisation, and to consider the various costs associated with subscription, training, customisation and integration or feature upgrades.

Soeren von Varchmin, vice president of SaaS at virtualisation software firm Parallels, said that as competition in the space increases and customer expectations grow, the vendors must improve time-to-market in order to stay competitive.

"Automation must be fully integrated into the business and software delivery model so that customers can place orders, get fulfillment, upgrades and billing and usage accounting without costly human intervention or support," he added.