SaaS Revenues To Top $14 Billion

Global sales of software as a service (SaaS) are rising steadily with increased adoption of SaaS and with total worldwide revenues expected to top $22 billion by 2015.

According to the latest market report from analyst firm, Gartner, SaaS revenue is forecast to reach $14.5 billion this year, a 17.9 percent increase from 2011 revenue of $12.3 billion, with healthy growth through to 2015 when revenue is forecast to reach $22.1 billion.

“After more than a decade of use, adoption of SaaS continues to grow and evolve regionally within the enterprise application markets,” said Sharon Mertz, research director at Gartner. “Increasing familiarity with the SaaS model, continued oversight on IT budgets, the growth of platform as a service (PaaS) developer communities and interest in cloud computing are now driving adoption forward.”

Gartner reports that, although growing interest has been observed in vertical-specific software, the most widespread use is still characterised by horizontal applications with common processes, among distributed virtual workforces and within Web 2.0 activities.

“The top issues encountered when deploying SaaS vary by region,” said Mertz. According to Mertz, limited flexibility of customisation and limited integration to existing systems are the primary reasons in North America. “In EMEA, network instability is the issue most frequently encountered, whereas longer-than-expected deployments are the top issue in Asia/Pacific. Vendors are more aggressively pursuing SaaS buyers outside traditional markets by offering local-language availability, forming alliances and constructing data centres to accommodate local requirements.”

SaaS revenue in Asia/Pacific – including in Australia – is on pace to reach $934.1 million in 2012, up from $730.9 million in 2011, Gartner reports.

Gartner says that, overall, SaaS adoption in Asia/Pacific has been fragmented, and Asia/Pacific (excluding Japan) is a combination of mature markets, such as Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan, and emerging markets, including China, India, Malaysia, Thailand, Indonesia, Vietnam and the Philippines. “SaaS financial (accounting) applications are most popular, particularly in China and India. The next-highest SaaS usage is for ERP functions — such as expense management and employee performance management — followed by office suites, email and the CRM sales function, Mertz says.

While the Japanese economy is still struggling and IT budgets are limited, Gartner says that the demand for SaaS solutions is increasing due to the country’s lower implementation costs and faster deployment times. SaaS revenue in Japan is forecast to reach $495.2 million in 2012, up from $427 million in 2011, with Gartner forecasting that growth of the SaaS market in Japan through 2015 will be led by CRM and email/groupware, which already have actual demand.

According to Gartner, North America, specifically the US, currently represents the largest opportunity for SaaS, and it is the most mature of the regional markets. North American SaaS software revenue is forecast to total $9.1 billion in 2012, up from $7.8 billion in 2011. Consistent with other regions, Gartner says North America shows the highest SaaS deployments in expense management, financials, email and office suites, and with use of Web conferencing higher in North America than in other regions, in part because of a highly distributed workforce.

In Western Europe, SaaS revenue is forecast by Gartner to surpass $3.2 billion in 2012, up from $2.7 billion in 2011, while SaaS revenue in Eastern Europe is projected to reach $169.4 million, up from $135.5 million last year.

Gartner analysts say SaaS adoption in EMEA is currently running at two speeds – in Western Europe, the most developed subregion, SaaS offerings and adoption rates are rapidly increasing as North America-based SaaS vendors further penetrate the region and the number of local European SaaS vendors increases. In Eastern Europe and the Middle East and Africa, which are small and emerging markets overall, Gartner says the potential opportunity for SaaS is more in the “medium to long term due to ongoing infrastructure challenges” that vendors need to overcome if they are to be successful in these regions.

Author: Peter Dinham
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Managing Partner at meshIP, LLC

Brian Byrne is the founder and Managing Partner of Dallas based meshIP, a technology services firm offering cloud computing strategies and services. He is an accomplished executive with senior management experience in all facets of the technology, telecom, cloud computing, and SaaS industries. He has proven success in developing, financing and executing strategic plans as well as launching new ventures. His background includes a record of significant achievement in international business development and his credentials include a MBA in Marketing and Management Strategy from the J.L. Kellogg Graduate School of Management at Northwestern University, a MS from the School of Computer Science at DePaul University, and a BBA in Finance from the University of Notre Dame.

He is also the inventor of the patented meshDETECT, Secure Prison Cell Phone Solutions.

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