2012 SaaS Revenue to Reach $14.5 Billion


By Tom Sloan


Cloud Computing and SaaS in general have been widely embraced by many US based organizations over the last decade.  Increasingly, the U.S. continues to represent the greatest opportunity for SaaS going forward.

SaaS has become a common delivery model for most business applications, including accounting, collaboration, customer relationship management (CRM), management information systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), content management (CM) and service desk management. SaaS  today has been incorporated into the strategy of all leading enterprise software companies.

According to a Gartner Group estimate, SaaS sales in 2010 reached $10b, and were projected to increase to $12.1b in 2011, up 20.7% from 2010. Gartner Group estimates that SaaS revenue will be more than double its 2010 numbers by 2015 and reach a projected $21.3b.

The latest report projects worldwide software as a service revenue is forecast to reach $14.5 billion in 2012, a 17.9% increase from 2011 revenue of $12.3 billion, according to the new report from Gartner. The report projected SaaS-based delivery would experience healthy growth through 2015, when worldwide revenue is projected to reach $22.1 billion.


Researchers noted although growing interest has been observed in vertical-specific software, the most widespread use is still characterized by horizontal applications with common processes, among distributed virtual workforces and within Web 2.0 activities.

North America, specifically the United States, currently represents the largest opportunity for SaaS, and it is the most mature of the regional markets. SaaS software revenue is forecast to total $9.1 billion in 2012, up from $7.8 billion in 2011. Consistent with other regions, North America shows the highest SaaS deployments in expense management, financials, email and office suites. Use of Web conferencing is higher in North America than in other regions, in part because of a highly distributed workforce, said Gartner research director Sharon Mertz.

"After more than a decade of use, adoption of SaaS continues to grow and evolve regionally within the enterprise application markets," Mertz said. "Increasing familiarity with the SaaS model, continued oversight on IT budgets, the growth of platform as a service [PaaS] developer communities and interest in cloud computing are now driving adoption forward."

Gartner analysts said SaaS adoption in Eurupe, the Middle East and Africa (EMEA) is currently running at two speeds. In Western Europe, SaaS revenue is forecast to surpass $3.2 billion in 2012, up from $2.7 billion in 2011, while SaaS revenue is Eastern Europe is projected to reach $169.4 million, up from $135.5 million last year.

In Western Europe, the most developed sub-region, SaaS offerings and adoption rates are rapidly increasing as North America-based SaaS vendors further penetrate the region and the number of local European SaaS vendors increases.
In Eastern Europe and the Middle East and Africa, which are small and emerging markets overall, the potential opportunity for SaaS is more in the medium to long term due to ongoing infrastructure challenges that vendors need to overcome if they are to be successful in these regions, the report said.

"The top issues encountered when deploying SaaS vary by region," Mertz said. "Limited flexibility of customization and limited integration to existing systems are the primary reasons in North America. In EMEA, network instability is the issue most frequently encountered, whereas longer-than-expected deployments are the top issue in Asia-Pacific. Vendors are more aggressively pursuing SaaS buyers outside traditional markets by offering local-language availability, forming alliances and constructing data centers to accommodate local requirements."

SaaS revenue in the Asia-Pacific region is on pace to reach $934.1 million in 2012, up from $730.9 million in 2011. Overall, SaaS adoption in the Asia-Pacific has been fragmented. The Asia-Pacific (excluding Japan) is a combination of mature markets, such as Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan, and emerging markets, including China, India, Malaysia, Thailand, Indonesia, Vietnam and the Philippines.

SaaS financial applications are most popular, particularly in China and India. The next-highest SaaS usage is for ERP functions—such as expense management and employee performance management—followed by office suites, email and the CRM sales function.

Gartner said users have found that SaaS reduces the burden of application management, increases the ease and agility of deployment, and reduces initial costs of implementation. 

"In addition, since the 2011 earthquake and tsunami, users have looked to SaaS adoption as a defense against future power outages and disasters. However, many companies are still concerned about SaaS-related issues, such as data security risk, true cost-effectiveness and the difficulty of linking with other systems," the report said.

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Bill has been a member of the technology and publishing industries for more than 25 years and brings extensive expertise to the roles of CEO, CIO, and Executive Editor. Most recently, Bill was COO and Co-Founder of CIOZone.com and the parent company PSN Inc. Previously, Bill held the position of CTO of both Wiseads New Media and About.com.