Economic crisis a boon for SaaS

Stan Beer
Tuesday, 27 January 2009 15:01

IT Industry - Market

The software as a service (SaaS) industry is set for a boom period thanks to the economic crisis sweeping the US and the globe. This is the finding of a new study based on recent customer surveys.

According to research group IDC, recent surveys and customer interviews support the finding that the harsh economic climate will actually accelerate the growth prospects for the SaaS model as vendors position offerings as right-sized, zero-CAPEX alternatives to on-premise applications.

IDC predicts that buyers will opt for easy-to-use subscription services which meter current use, not future capacity, and vendors and partners will look for new products and recurring revenue streams. As such, IDC has increased its SaaS growth projection for 2009 from 36% growth to 42% growth over 2008.

"With a broad slowdown across IT sectors, businesses are increasingly bearish about their short-term ability to invest, whether for stability, growth, or cost savings down the road," said Robert Mahowald, director, On-Demand and SaaS research at IDC.

"But SaaS services have benefited by the perception that they are tactical fixes which allow for relatively easy expansion during hard times, and several key vendors finished the year very strong, reporting stable financials and inroads into new customer-sets."

Additional findings from the IDC study include:

    * By the end of 2009, 76% of U.S. organizations will use at least one SaaS-delivered application for business use.

    * The percentage of U.S. firms which plan to spend at least 25% of their IT budgets on SaaS applications will increase from 23% in 2008 to nearly 45% in 2010.

    * This market's growth prospects will accelerate the shift to SaaS for the whole value chain as the promise of a recurring revenue stream, and the opportunity to tap OPEX and project-related dollars, will benefit the whole SaaS ecosystem.

    * While demand for SaaS is strongest in North America, new contracts from customers in Europe, Middle East, Africa (EMEA) and Asia/Pacific (excluding Japan) also look particularly positive, and IDC expects that by year-end 2009, nearly 35% of worldwide revenue will be earned outside of the U.S.

    * On the downside, IDC interviews with SaaS providers highlighted several issues, such as cash-flow shortfalls related to slow-paying current clients, liquidity challenges stemming from tight credit at lenders, and — on the horizon — limited resources to scale up with expanded infrastructure to support new customers and new service offerings.