November 11, 2009 – Software as a service revenue is forecast to increase nearly 18 percent in 2009, according to market research firm Gartner, Inc.

Expected to reach $7.5 billion this year, a new Gartner report (“Market Trends: Software as a Service, Worldwide, 2008-2013, Update”) expects the market to demonstrate consistent growth through 2013, nearly five times the compound annual growth rate of the total application market’s predicted 3.6 percent growth.

Sharon Mertz, research director at Gartner, describes the composition of the SaaS landscape as “evolving” – as vendors extend regionally, increase penetration within existing accounts and offer more vertical-specific solutions as part of their service portfolios or through partners.

“SaaS is growing on a lot of fronts and the vendors who are offering it are offering more functionality. All of the SaaS vendors continue to build relationships with systems integrators and they are taking good advantage in building their solutions, not only internally but also leveraging the ecosystem,” Mertz said. The broader ecosystem of SaaS includes cloud infrastructure providers such as Amazon Web Services and analytic databases from third parties that can be rolled out to SaaS consumers.

Across market segments, customer relationship management and content, communications and collaboration (CCC) represent the largest amount of SaaS revenue, according to the report.

SaaS continues is a key driver of growth in the CRM market, according to Mertz, and represents over 20 percent of the market, up from 8 percent in 2005.

“The market landscape for on-demand CRM continues to evolve as the availability and usage of SaaS solutions becomes more pervasive,” Mertz was quoted to say. “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.”

Gartner expects customer-focused growth to continue, with SaaS representing almost 24 percent of the CRM market’s total software revenue in 2009.

To hear more about SaaS, last week’s episode of DM Radio addresses single-tenant versus multi-tenant, how SaaS affects software license pricing, popular use cases for SaaS, when to go on-premises and what to do about security. Or, listen to this episode to hear about companies efficiently integrating SaaS and Web services in to their application architecture.

For more information on Gartner’s “Market Trends: Software as a Service, Worldwide, 2008-2013, Update” report click here.

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