eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
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.
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.
Collaboration, Web Conferencing Dominate SAAS
These SAAS suites will account for 9 percent of total software revenue by 2012, coexisting with classic on-premises products, such as Microsoft Office and IBM Lotus, Gartner said. That tells us that some shops will be paying for Google Apps Premier Edition and premium editions of other products.
SAAS productivity suites may be popular, but because they are mostly “freeware,” they’re not responsible for the bulk of SAAS sales. That distinction goes to the CCC (content, communications and collaboration) market, which Mertz told me Gartner defines as software for e-mail, e-learning, instant messaging, search, team collaboration, Web conferencing and enterprise content management.
IBM Sametime Unyte, Cisco WebEx Connect and products from smaller players such as CallWave, Yuuguu and Yugma account for some of the sales in this segment, which Gartner believes will exceed $2.1 billion in 2008 and $4.7 billion in 2012.
The second largest section of the overall SAAS enterprise application market is CRM. Mertz said companies like Salesforce.com, SugarCRM and NetSuite are carrying this market, with CRM SAAS sales exceeding $1.7 billion in total software revenue. Gartner expects CRM SAAS sales to reach $3.2 billion in total software revenue in 2012.
The prospects for SAAS sales seem rosy for 2008 and beyond if the Gartner report is to be believed, although Mertz said she expects the recession to have an impact on SAAS and all high-tech markets in 2009. How much of an impact remains to be seen.
Counting SAAS and on-premises solutions, Gartner expects the worldwide software market to grow at a compound annual growth rate of 10 percent through 2012. Asked for a worst-case scenario, Gartner downsized that figure to 9.4 percent, accounting for the current recession. Mertz explained:
“Whereas we thought 2008 may have been slower and the recovery would start at the end of 2009, we now think 2009 will be slower and we’ll see the recovery in 2010, but it’s so tough to tell because the markets are so jittery. We have yet to see what all of the long-term effects are going to be in the credit crisis.“
Not too shabby, but don’t rush to conclude that SAAS, by dint of its supposed cheaper cost, will pick up the ball dropped by on-premises contracts.
Mertz said despite the hype that SAAS will thrive in a downturn, it’s likelier that SAAS will only be used where it makes good business sense. In other words, don’t expect a gold rush for SAAS; instead expect, ahem, a cloud here or there.