Key issues facing SaaS industry

More than 95 percent of organizations expect to maintain or increase their investments in software as a service (SaaS) and more than one-third have migration projects under way from on-premises to SaaS, according to a Gartner survey.

In June and July 2011, Gartner surveyed 525 organizations in nine countries spanning 12 vertical industries to understand their usage patterns and key trends for SaaS in the enterprise.

“Respondents cited ease and speed of deployment and cost-effectiveness as the top two reasons for adoption. Leading uses of SaaS were either replacements for on-premises applications or net-new SaaS solutions,” said Sharon Mertz, research director at Gartner. “This represents a shift from previous Gartner surveys where more respondents indicated SaaS was being used as an extension to an existing on-premises application.

Nearly 70 percent of organizations have used SaaS for less than three years, also indicating a continuing stream of net-new users for this deployment model. More enterprises are renegotiating contracts early not only to satisfy demands for more functionality and an expanding user base, but also to take advantage of improved financial terms as downward pricing pressures continue in the wake of economic turbulence and increasing vendor competition.

“Although adoption trends are generally positive, SaaS is not without its challenges,” Ms. Mertz said. “More than one-third of respondents indicated issues with their SaaS deployments, citing limited integration with existing systems, network instability, and longer-than-anticipated implementation cycles as the highest-ranked challenges during deployment.

“In addition, most respondents still indicate that no policies have been instituted to govern the evaluation and use of SaaS, suggesting that little progress has been made since the previous survey in developing governance processes. The importance of governance mechanisms will continue to increase as SaaS becomes a larger element of a company’s overall sourcing strategy.”

A comparison of Gartner SaaS user-survey results from 2008 and 2010 indicate that the percentage of decisions made at the executive level is increasing. The latest survey results show that the decision process is shifting to a joint decision between the business and IT.

Analysts found that deployments of both horizontal and vertical-specific SaaS solutions (VSS) vary greatly by industry, as do planned deployments for 2012 and those considered beyond. Many industries that have not pursued SaaS in the past are beginning to do so.

Currently, communications (52 percent), utilities (51 percent), and banking and securities (49 percent) industries rank highest with respect to SaaS deployed across the horizontal and vertical-specific categories sampled. In 2012, those industries ranking highest with respect to their plans to use SaaS include federal government (33 percent), banking and securities (22 percent) and wholesale trade (20 percent). Beyond 2012, top industries considering SaaS are manufacturing and natural resources (37 percent), wholesale trade and retail (each 29 percent).

When respondents’ 2012 deployment plans are combined with those considering SaaS beyond the coming year, federal government ranked highest (60 percent), followed by manufacturing and natural resources (50 percent), wholesale trade (49 percent) and retail (46 percent).

“The survey illustrates how some industries lagging in past SaaS deployments are currently poised to use and consider it going forward and a remarkably strong upward trajectory with respect to the consideration of SaaS is occurring,” said Robert Anderson, research vice president at Gartner. “Providers seeking to target industries with horizontal and vertical-specific SaaS applications should first analyze overall trends as to current deployments, 2012 plans and other longer-term considerations to improve the timing and prioritization of their rollout strategies.”

Similarly, opportunities for vertical-specific SaaS solutions vary across and within the industries surveyed. Healthcare, insurance and retail industries currently have the highest level of SaaS-based VSS already deployed. Healthcare (49 percent) is also ranked by respondents as the top industry planning to consider SaaS in the future, followed by banking and securities (45 percent) and federal government (42 percent). Popular VSS solutions where SaaS will be considered going forward in these industries include medical coding/transcription and physician electronic medical health records in healthcare, core banking and related services in banking and securities, and case and records management in federal government.


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