April 30, 2010 – More than 95 percent of organizations plan to increase SaaS use, according to a new Gartner study. That increase should be tempered with foresight, one analyst says.

SaaS is maturing and, as a result, organizations are beginning to test its limits, says Sharon Mertz, research director at Gartner.

Those limits, according to Gartner’s survey of 270 IT and business management professionals, come in the form of concerns about integration and customization as well as a lack of policies governing the evaluation and use of SaaS.  For example, the number of survey respondents with a governance policy in place for the use of SaaS only increased 1 percent in 2009 to 39 percent.

“People were caught up in the initial hype of SaaS and they didn’t really consider the fact that it was not a completely turnkey, out-of–the-box solution,” says Mertz.

Organizations were eager to jump on the SaaS bandwagon, but many did not consider the downstream ramifications. Whether it was a result of businesses trying to remain profitable during economic crisis, or something else, establishing forward-looking governance and integration processes was something not everyone was thinking about, Mertz says.

“If you use [SaaS] long enough, then it really becomes integrated into your business process. So, if it’s not integrated at a system level it gets clunky,” she said. “It’s like any other decision. You need to understand what the best fit is with your business model and requirements.”

Problems aside, survey results showed that organizations have become savvier about contract renegotiation, adding greater functionality, additionally users and improved financial terms, says Mertz. “Thirty percent of respondents said that they had renegotiated their SaaS contracts before the end of the initial term.”

It’s SaaS and similar delivery models that might provide flexible project and portfolio management vendors with an opportunity to drive up their decreasing revenue, Gartner Research Director Laurie Wurster said. In a separate report, analysts found that worldwide PPM software revenue decreased 1.5 percent in 2009 to $1.16 billion.

“After a five-year period of strong, mostly double-digit growth, the financial turmoil in late 2008 and subsequent spending uncertainties in early 2009 left a negative mark on the usually robust PPM market in 2009," Wurster was quoted to say.

In still another report released this week, Wurster also noted that project application development software revenue fell in 2009, down 2 percent to $7.25 billon. Citing spending freezes on new projects as the primary reason for the revenue slump, Wurster emphasized the cyclical nature of application development tool spending. “[It] tends to be cyclical in nature with strong years of spending, as we saw in 2007, followed by a year or two of low or reduced investment.”

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