In Spite of -- or Maybe Because of -- Bad Economy, SaaS Is on a Roll

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Despite the fact we're coming off a year filled with economic uncertainty -- or perhaps because of it -- software-as-a-service appears to be on a roll. Gartner expects worldwide SaaS revenue to hit $7.5 billion in 2009, a 17.7 percent increase over 2008 revenue of $6.4 billion. SaaS will enjoy consistent growth through 2013, reaching a projected $14 billion-plus in revenue, Gartner says. (It's worth noting that Gartner had even more optimistic expectations for SaaS in the spring/summer of 2008, just before the economy took a dramatic dive.)


According to Gartner Research Director Sharon Mertz, applications for specific verticals, sometimes offered through partners, and the promotion of platform-as-a-service (PaaS) capabilities, which allow companies to develop their own applications, are among the factors boosting growth this year. (Michael West and Mark Koenig, vice presidents at Saugatuck Technology, successfully called it on the popularity of PaaS and its positive impact on SaaS when I interviewed them in May 2008.)


Gartner says content, communications and collaboration software edged out customer relationship management as the top SaaS application in 2009, generating $2.6 billion, up from $2.14 billion in 2008. The CRM segment yielded $2.3 billion in 2009, up from $1.9 billion in 2008. It's no wonder so many vendors are rolling out cloud-based collaboration software. More recently, companies like IBM and Microsoft are introducing hybrid solutions that allow companies to migrate some collaboration applications to the cloud while keeping others on-premise.


There's a fairly dramatic popularity gap in apps below those top two. They are, according to Gartner:

  • ERP, with 2009 revenue of $1.2 billion, up slightly from similar revenue in 2008.
  • Supply chain management, with 2009 revenue of $826 million, up from $710 million in 2008.
  • Office suites, with 2009 revenue of $68 million, up from $56 million in 2008.
  • Digital content creation, $62 million, up from $44 million.
  • Other application software, $472 million, up from $387 million.


The Gartner press release singles out CRM, noting that SaaS accounts for nearly 24 percent of total CRM software revenue in 2009, up from 20 percent in 2008 and some 8 percent of the market in 2005. The release quotes Mertz:

The rapid adoption of SaaS and the marketplace success of Salesforce.com have compelled vendors without an on-demand solution to either acquire smaller niche SaaS providers or develop the solution internally in response to increasing buyer demand.

Showing figures far more startling than Gartner's, IT consultant and Microsoft partner Avanade says the number of enterprises signing up for some form of cloud computing service jumped 320 percent in the first three quarters of this year. Based on a survey of 500 companies in 17 countries, the number of businesses with no plans for using cloud-based services dropped from 54 percent to 37 percent during the same time frame.