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Companies Reportedly Buying More Software As A Service

Gartner attributes the uptick to enhanced functionality and improved customization capabilities.

Companies are spending more on software as a service, as vendors improve on the technology for delivering functionality over the Internet, a market research firm said Thursday.

The portion of new business software revenue generated from SaaS products is expected to increase to 25 percent by 2011 from 5 percent last year, Gartner Inc. said.

From 2000 to 2003, SaaS vendors delivered mostly "good enough" functionality, Gartner analyst Robert DeSisto said in a statement. "SaaS and solving business complexity were two phrases not associated with each other."

That trend, however, has clearly changed, he said. "SaaS providers are enhancing their software functionality and improving the ease with which companies can customize and more uniquely configure SaaS software to meet business requirements."

Adoption of SaaS has varied significantly by market segment. The delivery model accounted for 8 percent of revenue from customer relationship management software in 2005, but less than 4 percent of ERP and supply chain management sales, Gartner said.

The majority of SaaS deployments continue to be on the department level in large corporations, and in small and medium-size businesses, the analyst firm said.

Although capabilities are improving, "no provider offers the functionality capability or process management capabilities on par with on premise software to support end-to-end cross departmental business flows," DeSisto said.

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