Gartner Sees Great SAAS Enterprise App Growth Despite Downturn

Oracle CEO Larry Ellison makes no secret of the fact that he takes a dim view of software as a service and cloud computing. That doesn't mean everyone shares his view.

Gartner, which defines SAAS apps as software services users subscribe to over the Internet, the week of Oct. 20 published a report saying SAAS sales in enterprise application markets are on pace to surpass $6.4 billion in 2008.

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This would be an impressive 27 percent increase from SAAS' 2007 revenue of $5.1 billion. More impressively, that market is expected to more than double by 2012, with SAAS revenue topping $14.8 billion. These stats indicate that companies continue to move to the SAAS model to reduce spending on servers, storage and other IT gear.

I know what you must be wondering. Were those calculations made before or after the high-tech market swooned in September, precipitated by the financial service industry's credit crunch?

Sharon Mertz, Gartner analyst and one of the authors of the report, told me she and her colleagues wrapped up their report in August, before the high-tech downturn and layoffs began en masse.

"That doesn't reflect the market bouncing in September, but I don't know that we would shift it, if at all," Mertz explained.

Mertz and her team have noticed a slowdown in SAAS spending beginning in the third calendar quarter, she said. However, she also said she doesn't expect much change in the SAAS picture from those conclusions. Mertz told me:

We're just starting to see signs of it toward the end of the third quarter. People are stating to show some hesitancy in finalizing deals from the buyer perspective. We saw a little more [reluctance] on the part of the buyers to spend money, a little bit of a budget freeze in some of the sectors.

Those sectors include financial services, which we all know has been dinged in 2008, and "discrete manufacturing," which includes automotive industries that have 100-day inventory backlogs to consider.

However, IT spending won't cease altogether in financial services. Bank megamergers will open the door for new SAAS opportunities.

So, what's hot in SAAS? Unsurprisingly, SAAS office productivity and collaboration suites, such as Google Apps, AdventNet's Zoho and Adobe Buzzword, boast the most meteoric growth.