Worldwide software-as-a-service (SaaS) revenue in the enterprise application markets is on track to surpass $6,4-billion in 2008, a 27% increase from 2007 revenue of $5,1-billion.

According to Gartner, the market is expected to more than double with SaaS revenue reaching $14,8-billion in 2012.
Gartner analysts says the adoption of SaaS is growing and evolving within the enterprise application markets as new entrants challenge incumbents, popularity increases, and interest for platform as a service grows.
"The popularity of the on-demand deployment model has increased significantly within the last four years. Initial concerns over security, response time, and service availability have diminished for many organisations as SaaS business and computing models have matured and adoption has become pervasive," says Sharon Mertz, research director at Gartner.
"It is important to differentiate SaaS from hosting or application management or application outsourcing," adds Chris Pang, principal analyst at Gartner. "Because the SaaS/on-demand market is 'hot', many suppliers are re-branding their hosting or application management or application outsourcing capabilities as SaaS/on-demand.
"The core proposition behind SaaS/on-demand is the delivery of multi-tenant service from a remote location over an internet protocol (IP) network via a subscription-based outsourcing contract."
Some of the key industry trends that contribute to the rapid growth of SaaS globally include businesses examining ways to reduce their IT capital expenditure budget, the increased availability of broadband which extends the viability of Web-based service solutions globally, and the demand from businesses to rapidly implement software which supports a specific business need.
The fastest-growing markets for SaaS are office suites and digital content creation (DCC), albeit from small bases. Gartner estimates that the revenue attributed to SaaS within the office suites market will reach 99,2% compound annual growth rate (CAGR) from 2007 through 2012, with a total SaaS revenue reaching $1,9-billion in 2012.
By 2012, Gartner estimates that Web-based freeware such as Google Apps, Adobe Buzzword, ThinkFree, Zoho and SaaS offerings will account for 9% market share of total software revenue. These offerings will coexist with traditional office products, such as Microsoft Office and complement the way individuals work today.
Gartner forecasts that the revenue attributed to SaaS in DCC market will be 96,1% CAGR from 2007 through 2012.
"DCC software is becoming increasingly important as organisations evolve toward a more Web-centric business model. Consumer decisions and confidence control the mainstream flow of the segment and future development of SaaS in this market will depend on internet broadband capacity," says Mertz.
The content, communications and collaboration (CCC) markets remains the largest contributor to the overall SaaS enterprise application markets with revenue exceeding $2,1-billion in 2008, and it is expected to amount to $4,7-billion in 2012. It also shows the widest disparity of SaaS revenue generation, with SaaS representing 2% to 3% of enterprise content management (ECM) and more than 70% of Web conferencing in 2007.
The second largest contributor to the overall SaaS enterprise application markets is customer relationship manager (CRM). In 2008, SaaS within the CRM industry is expected to exceed $1,7-billion in total software revenue. Gartner expects CRM SaaS revenue to exceed $3,2-billion in total software revenue in 2012.
"Although the sales sub-segment still represents the largest contributor to SaaS revenue, demand is increasing for marketing automation and customer service and support solutions," says Mertz.
"Before IT leaders embark into deploying SaaS, they need to determine where SaaS is most appropriate and advantageous within the organisation's overall sourcing and applications strategy. It is also important that they identify the costs incurred with a SaaS solution to establish whether SaaS is the better choice," says Pang.