Gartner Downgrades SaaS Forecast

The worldwide market for software-as-a-service is forecast to hit $7.5 billion this year, a healthy 17.7% increase from last year. Still, the bad economy didn't spare the SaaS market: Gartner has downgraded its forecast from the $8 billion it projected earlier this year.

The latest forecast, released Monday, also predicts the SaaS market to hit $14 billion in 2013. This is down from Gartner's forecast in May -- based on research conducted in early 2009 -- in which it forecast $16 billion in revenue by 2013.

Gartner analyst Sharon Mertz says the economy has played a big part in the adjustment: As companies downsize, they cut SaaS subscriptions. And when they buy fewer PCs, they buy fewer SaaS subscriptions.

But 17.7% growth is nothing to scoff at, particularly since many other areas of IT aren't growing at all this year. "SaaS vendors are still doing well," Mertz says. "There are more large deals, more new installations, and some legacy replacement happening as well. SaaS will continue to be strong and grow well."

Although customer-relationship management is often considered the most popular app for SaaS, Garter's research shows the greatest sales are happening in what it classifies as content, communications, and collaboration. Sales in that area are forecast to hit $2.6 billion this year, up 20% from last year.

It's easy to see why so many companies feel comfortable with this form of SaaS, since it often sits outside core business processes. This category includes Web conferencing (such as Cisco's WebEx) and e-learning, and 80% of what companies spend on Web conferencing and 60% of what they spend on e-learning now comes from SaaS, Mertz says. This area also includes team collaboration and, to a lesser degree, enterprise content management.

The CRM SaaS market, lead by Salesforce.com, is projected to rise 22% this year to $2.29 billion. Another fast-growing yet still small area for SaaS is office suites such as Google Apps; it's expected to grow 21% to $68 million.

The market for enterprise resource planning SaaS, which includes NetSuite and Workday, is not growing as fast. It's forecast to hit $1.24 billion this year, up just 5% from last year. Supply chain management SaaS is forecast to increase 16% to $826 million, and digital content creation is forecast to rise 41% to $62 million. All other types of SaaS apps are forecast, collectively, to rise 22% to $472 million.

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