SaaS enterprise usage putting software vendors under pressure: report

Stan Beer
Thursday, 04 December 2008 10:08

IT Industry - Market

Nearly 90% of organisations in major markets across the world expect to maintain or grow their usage of software as a service (SaaS), putting enterprise software vendors such as Oracle and SAP under pressure, according to a new survey.

The new report from Gartner, "User Survey Analysis: Software as a Service, Enterprise Application Markets, Worldwide, 2008" found that respondents cited cost-effectiveness and ease/speed of deployment as primary reasons for adoption.

The survey was conducted across eight major countries worldwide in June and July 2008 with 258 qualified respondents completing the survey. Gartner polled individuals from North America, Europe and Asia/Pacific. Respondents to the survey were personally involved in the implementation support, implementation, planning and/or budget decisions related to the purchase of enterprise application software (content, communications and collaboration; CRM; ERP; or supply chain management.

Replacement of on-premises solutions and net-new implementations were cited as major drivers of future deployments. More than one-third of respondents indicated plans to transition from on-premises to SaaS. The key drivers cited included total cost of ownership (TCO), and unmet performance expectations with on-premises solutions, in addition to changes in sourcing strategy.

"Demand for SaaS has grown as increasing margin pressures on businesses drive the search for less-capital-intensive alternatives. Rising maintenance costs from the "megavendors," such as SAP and Oracle, can constrain budgets and encourage buyers to entertain other options and choice of vendors. New expectations for time to market demand reduced deployment times and less-resource-intensive implementations," the Gartner report stated.

Key findings of the report included:

    * 40% of organisations had been using SaaS for more than 3 years


    * 90% of organisations intend to maintain or grow present level of SaaS usage


    * 37% of respondents were transitioning from a current on-premises solution to a SaaS solution


    * Organisations are looking to upgrade their SaaS solutions to richer feature sets and extend their SaaS organizational footprint


"Use of SaaS has been evolving during the past decade and the SaaS model has become increasingly popular over the past three or four years," said Sharon Mertz, research director at Gartner.

"Our survey indicates that more than 40% of organisations have used SaaS for more than three years, implying a growing fluency with the model within the end-user base. Users are demanding higher levels of functionality, sometimes prompting organisations to renegotiate their contracts early to opt for more feature-rich solutions, or to add more users as the organisational footprint expands."

North American respondents showed a greater confidence that their organisations will increase investments in products offered as SaaS or through a subscription model through year-end 2010, compared with those in Europe and Asia/Pacific.

62% of North American respondents said that they expected new investments to increase slightly and 15% said that they expected new investments to increase significantly compared with 49% and 15%, respectively, in Europe and 55% and 5%, respectively, in Asia/Pacific. North America was an early adopter of solutions delivered through the SaaS model, with more than 20% of respondents indicating use for five years or longer and 60% having adopted it in the last three years.

Gartner's survey found that 37% of respondents were transitioning from a current on-premises solution to a SaaS solution. This drive is particularly significant in Asia/Pacific where 50% of respondents indicated that they were shifting away from on-premises and India indicated a 70% conversion.

When asked why their organisations were transitioning from a current on-premises solution to a SaaS solution, respondents' consistent message was that the TCO was becoming too financially onerous. Given the likelihood of reduced discretionary spending in 2009 and perhaps 2010, Gartner expects that these driving forces will foster greater demand for SaaS solutions rather than budgets directed at enhancing — or furthering investment for — on-premises solutions.