Gartner predicts SaaS spending spree in 2011

Hosted software becomes more attractive as capital budgets tighten, says analyst

Analyst firm Gartner is predicting that businesses will increase spending on software-as-a-service (SaaS) implementations by nearly 21 per cent in 2011, as tight capital budgets force IT leaders to embrace pay-as-you-go computing.

While SaaS has been around for more than a decade, many firms are re-evaluating its potential, said Tom Eid, an analyst at Gartner.

"Initial concerns about security, response time and service availability have diminished for many organisations as SaaS business and computing models have matured and adoption has become more widespread," he said.

The vast bulk of SaaS spending goes on customer relationship management software, such as that produced by Salesforce.com. Gartner predicts that CRM will account for 32 per cent of firms' total spend on SaaS in 2011.

But firms are also turning to SaaS for other functions.

According to Gartner, spending on SaaS-based content, communications and collaborations technology will rise by 18 per cent in 2011.

But firms are still reluctant to purchase SaaS-based enterprise resource planning applications (ERP), Gartner reported. It currently accounts for just seven per cent of total ERP spending and is only set to rise modestly over the coming year.