STAMFORD, Conn., September 28, 2006 -- Software as a service (SaaS) represented approximately 5 percent of business software revenue in 2005 and, by 2011, 25 percent of new business software will be delivered as SaaS, according to Gartner, Inc. SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics.

"As SaaS became a viable delivery model from 2000 to 2003, most providers supplied 'good enough' functionality with core configuration capabilities. SaaS and solving business complexity were two phrases not associated with each other," Robert DeSisto, research vice president for Gartner. "The trend has clearly begun to change. For example, SaaS providers are enhancing their software functionality and improving the ease with which companies can customize and more uniquely configure SaaS software to meet business requirements."

The adoption of the SaaS software delivery model has varied significantly by market segment. SaaS accounted for approximately 8 percent of CRM total software revenue in 2005 (Gartner estimates 2006 SaaS revenue to reach 12 percent of total CRM software revenue) and integration as a service had 10 percent adoption in its market. But, other markets, such as the ERP and supply chain management segments, had less than 4 percent adoption.

"The majority of SaaS deployments continued to be focused in individual departmental initiatives, such as sales force automation, except in small and medium size businesses (SMBs). In SMBs, we are beginning to see vendors provide capabilities to support more end-to-end processes, such as opportunity to order and in integration as a service where companies are already using SaaS for large projects," Mr. DeSisto said. "However, no provider offers the functionality capability or process management capabilities on par with on premise software to support end-to-end cross departmental business flows."

As SaaS solutions become more mainstream, and more enterprises adopt them, the dynamic of how they are bought and sold is changing. During the past few years, the primary acquirer of SaaS has been a line of business leader, such as the vice president of sales or the head of human resources, without much involvement of central IT.

"The limited central IT involvement is changing as the IT organization realizes that SaaS solutions are here to stay and that they must look to leverage the upside potential of these approaches, rather than see them as a threat to their existing modus operandi," Mr. DeSisto said. "Line of business leaders and central IT should be involved in the selection process and then in the ongoing management of a SaaS contract. Having both parties represented leads to better initial decisions being made and to more efficient, effective ongoing management."

Additional information is available in the Gartner report "On Premise Software Will Be Challenged By SaaS Software Delivery." The report examines how SaaS will affect buyer and market dynamics for software and IT services. The report is available on Gartner's Web site at http://www.gartner.com/DisplayDocument?ref=g_search&id=496811& subref=simplesearch. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser's URL address field.)

Gartner analysts will provide an overview on the current state of SaaS in support of business processes during the Gartner Symposium/ITxpo, which is taking place October 8-13 in Orlando. Gartner Symposium/ITxpo is the IT industry's largest and most strategic conference, providing business leaders with a look at the future of IT. For more than 10,000 IT professionals from the world's leading enterprises, Gartner's annual Symposium/ITxpo events are key components of their annual planning efforts. Attendees rely on Gartner Symposium/ITxpo to gain insight into how their organizations can use technology to address business challenges and improve operational efficiency. Additional information is available at http://www.gartner.com/symposium/us.

About Gartner

Gartner, Inc. (NYSE: IT) delivers the technology-related insight necessary for its clients to make the right decisions, every day. Gartner serves 10,000 organizations, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company consists of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 3,700 associates, including 1,200 research analysts and consultants in 75 countries worldwide. For more information, visit http://www.gartner.com.

Gartner, Inc.
Christy Pettey, 408-468-8312
christy.pettey@gartner.com