Revenue this year is on track to rise above $6.4 billion, compared with $5.1 billion last year, Gartner said. In four years, revenue is expected to reach $14.8 billion.
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 organizations as SaaS business and computing models have matured and adoption has become pervasive," Sharon Mertz, research director at Gartner, said in a statement.
Gartner, however, warned buyers to differentiate SaaS from hosting or application management or application outsourcing vendors. "Because the SaaS/on-demand market is hot, many suppliers are rebranding their hosting or application management or application outsourcing capabilities as SaaS/on-demand," Gartner analyst Chris Pang said.
Gartner defines SaaS as the delivery of a multitenant service from a remote location over an Internet protocol network via a subscription-based outsourcing contract.
Driving the growth in SaaS deployments is businesses' desire to reduce their IT capital expenditure budget and to rapidly implement software that supports a specific business need, Gartner said. In addition, the increased availability of broadband has given organizations the bandwidth to support SaaS.
The fastest-growing markets for SaaS are digital content creation and office productivity suites such as Google Apps, ThinkFree, Adobe Buzzword, and Zoho, Gartner said. The content, communications and collaboration markets, however, remain the biggest contributors to the overall SaaS enterprise application market. The second largest contributor to the overall market is customer relationship management applications. Vendors in that space include Salesforce.com and NetSuite.
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