SaaS uptake set to climb

Organizations expect the use of software-as-a-service (SaaS) to continue at present and in the future, due to the ease of deployment and cost effectiveness, but challenges including limited integration with existing systems and network instability remain, according to a new Gartner survey.

The research firm revealed Monday in a release that more than 95 percent of organizations expected to maintain or increase their investments in SaaS and more than one-third have projects under way to migrate from on-premise software to to hosted applications.

Conducted in June and July this year, the study involved 525 organizations in nine countries representing 12 vertical industries.

Respondents cited ease and speed of deployment and cost effectiveness as the top two reasons for adoption, Sharon Mertz, research director at Gartner, noted in the release.

Leading uses of software-as-a-service, she added, were either replacements for on-premise applications or net-new SaaS solutions. This illustrated a shift from previous Gartner surveys where more respondents indicated SaaS was being used as an extension to an existing on-premise application.

According to the latest study, over 70 percent of organizations have used SaaS for less than three years, indicating a continuing stream of net new users for this deployment model. Gartner also noted 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.

Comparing the SaaS user-survey results from 2008 and 2010, the percentage of decision makers made at executive level is increasing, illustrating that decision process is shifting to a joint decision between the business and IT.

More verticals go SaaS
Gartner found that deployment of horizontal and vertical-specific SaaS solutions, as well as planned deployments for 2012 and beyond, varied greatly by industry. In addition, many industries which had not pursued the utility model in the past are beginning to do so.

In terms of past and current deployment, the communications, utilities, and banking and securities sectors rank the highest at 52 percent, 51 percent and 49 percent, respectively.

Industries ranking highest with respect to their plans to use SaaS in 2012 are federal government at 33 percent, banking and securities at 22 percent and wholesale trade at 20 percent. Beyond 2012, industries considering hosted software are manufacturing and natural resources at 37 percent, wholesale trade and retail at 29 percent each.

When respondents' 2012 deployment plans were combined with those considering SaaS beyond next year, federal government ranked the highest at 60 percent, followed by manufacturing and natural resources at 50 percent, wholesale trade at 49 percent and retail at 46 percent.

Robert Anderson, research vice president at Gartner, said in the same statement that sSome industries previously lagging in 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."

According to Anderson, providers seeking to target industries with horizontal and vertical-specific SaaS applications should first analyze overall trends around adoption and deployment, as well as weigh 2012 plans and other longer-term considerations, in order to improve the timing and prioritization of their rollout strategies.

Touching on vertical-specific SaaS tools, Gartner said healthcare, insurance and retail industries are the top sectors by deployment. At 49 percent, healthcare was ranked by respondents as the top industry planning to consider SaaS in the future, followed by banking and securities at 45 percent and federal government at 42 percent.

Solutions where SaaS will be considered going forward include medical coding or transcription and physician electronic medical health records in healthcare, core banking and related services in banking and securities, and case and record management in federal government.

"There are significant variations of vertical-specific SaaS deployed both across and within industries surveyed. Many that have delayed consideration of SaaS for vertical-specific solutions until now, such as federal government and banking and securities, plan to use it in the future," Anderson said. "Providers planning to target VSS SaaS opportunities should analyze current and planned future deployments across and within industries, as experience and interest levels vary and are shifting rapidly."

Mertz pointed out that while adoption trends are generally positive, software-as-a-service is not without its challenges. "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."

Most respondents also indicated that no policies have been instituted to govern the evaluation and use of SaaS, which suggested little progress made since the previous survey in developing governance processes, she added. The importance of governance mechanisms will continue to increase as SaaS becomes a bigger component of a company's overall strategy, Mertz said.