Today morning I wrote a post that pointed to a Gartner report that said SaaS revenues from enterprise application market has increased 14.1 percent in 2010 compared to 2009. Now the market research firm IDC has come out with a study that forecasts the market to reach $40.5 billion by 2014, representing a compound annual growth rate of 25.3%.
The other key findings include
- By 2012, nearly 85% of net-new software firms coming to market will be built around SaaS service composition and delivery; by 2014, about 65% of new products from established ISVs will be delivered as SaaS services
- SaaS-derived revenue will account for nearly 26% of net new growth in the software market in 2014.
- Traditional packaged software and perpetual license revenue are in decline and IDC predicts that a software industry shift toward subscription models will result in a nearly $7 billion decline in worldwide license revenue in 2010. As a result, a permanent change in software licensing regime will occur.
- SaaS segment mix will shift toward infrastructure and application development and deployment/PaaS, and away from U.S. dominance. IDC expects that by 2014, applications will account for just over half of market revenue. This shift will happen in part as a result of increasing IT cloud spending by enterprise IT groups and commercial cloud services providers (cloud SPs) relative to end-user spending.
Both this IDC study and Gartner study indicates that enterprises are embracing SaaS in a big way and the day when shrink wrapped software will enter the history books is not very far. There are many reasons for this large scale SaaS adoption. Chief among them are
- The prolonged economic downturn and the need for companies of all sizes to get their finances tight
- More widely distributed teams needing a robust collaborative environment
- Younger workforce wanting to use the latest technologies they are familiar with
- An IT environment having more mobile devices than anytime in the past
However, as I noted in my previous post, there are challenges that remain. We need to go a long way before SaaS becomes as ubiquitous as traditional shrink wrapped applications.