In a report released last week, the Gartner Group reported they expect worldwide Software-as-a-Service (SaaS) revenue to Grow 22 percent in 2009, becoming a $9.6 billion USD market. SaaS is expected to have a compound annual growth rate (CAGR) of 19.4% through 2013, while the total market CAGR is projected at 5.2%. Clearly, SaaS applications continue to gather steam.
One area that stands out in the report is SaaS "office applications" (such as Google Docs, Zoho, Zimbra, EditGrid, and Microsoft Office Live), with its four-fold projection growth in 2009 from $136 million in 2008 to $512 million. Clearly this is also a major growth area because of its broad applicability, speed of innovation, and potential cost savings, and probably frightening to some well known entities in the traditional software industry.
While companies such as Salesforce.com and NetSuite are poster children of SaaS applications in general, SaaS CRM still only represents 18% of the CRM market. However, because of the high rate of adoption, rapid deployment, and virtually no ongoing maintenance, third party vendors will still find this market very appealing, largely because the first question from Sales and Support teams doesn't have to be "what version are you running?" The decrease in complexity in building on top of and supporting existing markets in the SaaS CRM space versus the traditional CRM space is dramatic.
However, It will still be a long time until on-premise software has any kind of swan song. While 30% of procurement software is expected to go SAAS, only 1% of the ERP market is likely to be penetrated by SAAS applications in 2013 according to the Gartner report. And due to privacy concerns, medical record data for example is a long way off from ever being stored on external systems. Don't rule it out entirely though - there once was a time where the idea of keeping your money in a bank was ridiculed (and perhaps in light of the current economy rightfully so!)
While the SaaS star continues to rise, and those of us on the cutting edge will continue to beat its drum, for a long time to come it will only represent a piece of the software industry. So for most of us, that means we will continue to live in a heterogeneous software world for the foreseeable future.
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