Software-as-a-service (SaaS) sales are expected to reach $12.1bn in 2011, an increase of 21% compared to $10bn in 2010, according to research firm, Gartner.

According to Gartner’s latest figures, SaaS will comprise almost a third (32%) of the total customer relationship management (CRM) software market in 2011, accounting for $3.8bn in 2011, an increase from $3.2bn in 2010.

“The market landscape for on-demand CRM continues to evolve and mature as the availability and use of SaaS solutions become more pervasive,” said Tom Eid, research vice-president 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,” Eid added.

Enterprise resource planning (ERP) SaaS sales are the lowest in the market, making up only 7% of the overall ERP market. Gartner predicts ERP SaaS sales to reach $1.7bn by the end of 2011.

Gartner expects the SaaS market to grow to reach $21.3bn by 2015 with 90% of sales being regarded as cloud services.

Salesforce.com has long been a pioneer of the Software as a Service (SaaS) industry. And as many of the larger software vendors have now started getting on the SaaS bandwagon, they have found that SaaS is not as easy to deliver as they expected. SAP has struggled and in 2010 only 100 users wereusing their SaaS offering. UK accounting software provider Sage scrapped its first attempt at SaaS owing to security flaws. Other vendors have decided to follow a different route following the old mantra ‘if you can’t beat them join them’. In 2007 Salesforce.com launched Force.com, a platform as a service (PaaS) offering that allows third parties to build their own applications on top of the salesforce.com core. This gave a way for independant software vendors a way to ‘go SaaS’ without having to build or host the platform themselves.

One of the first companies to do this was CODA, a UK based accounting software provider that has since been acquired by the Ducth software company Unit4. Since then many more have followed the path to PaaS as a low cost way to deliver SaaS. According to Forrester there may be as many as 25,000 organisations currently using Force.com to build their applications.

So you can’t ignore the Cloud and SaaS and you should include it in your technology roadmaps. Top tip: don’t sign long term traditional licensing deals with any software supplier as their current pricing model will be replaced with something better within the next few years.

While the overall economy has offered mixed signals lately, many tech companies are reporting a rebound in corporate technology spending. But canny buyers are making best use of more cost effective SaaS solutions. More companies are looking to save money by signing up for cloud computing services like those offered by Salesforce.com, in which the company hosts client software on its servers and makes it accessible over the Web. That saves companies from having to invest in major server and disk equipment as well as the associated in-house support staff. 

The resumption of construction by Oracle at their huge data centre in Salt Lake City, Utah is a telling indicator of the scope of Oracle’s plans for on-demand software, as it comes even after the acquisition of Sun Microsystems and all its data centers.

So far, Oracle has just a handful of SaaS (software as a service) business applications, among them its CRM on Demand. It reported US$779 million in on-demand revenue during its fiscal 2009, a small fraction of overall sales. But Oracle’s SaaS strategy is set to ramp up this year, with the long-awaited launch of Fusion Applications, a next-generation suite that is supposed to combine the best attributes from its various product lines and feature a BI (business intelligence)-laden user interface. Oracle’s go-to-market strategy for Fusion Applications is carefully crafted to avoid alienating its large installed base of customers on legacy applications. These users won’t be placed on an immediate forced march to Fusion Apps, which will be available in on-premises form but is being developed as “SaaS-ready.”

The company realizes that customers have a “huge investment and commitment” tied to Oracle-acquired applications such as Siebel and PeopleSoft, CEO Larry Ellison said at last year’s OpenWorld conference. Oracle will continue to enhance those product lines “for the next decade and beyond,” Ellison said. Therefore, the Fusion Apps strategy is supposed to appeal not only to customers who desire the latest and greatest Oracle products, but also to these legacy users, who might want to consume Fusion a little at a time, perhaps in SaaS form.

Oracle’s CRM (customer relationship management) business is providing key evidence that increased customer demand for SaaS will follow. According to a US-based analyst company (Altimeter) ninety-two percent of the new Oracle CRM deals they have seen since January are for the on-demand version.

Footnote: when buying any hosted SaaS/Cloud solution, always confirm where your data will be held. Some businesses are uncomfortable if data is to be held off-shore.

IT management software firm CA is to acquire Nimsoft in an all-cash transaction valued at $350m, in a move to expand its presence in emerging enterprise and Managed Service Providers (MSPs) markets. Nimsoft has approximately 800 customers, including nearly 300 MSPs and operates primarily in the US and Europe. It provides unified monitoring offerings for virtualised datacentres, hosted and managed services, cloud platforms and SaaS resources. With the acquisition, CA expects to add an entirely new set of customers to its base, which has historically focused on larger companies, and also expand its presence in growing international markets, where it expects cloud computing and hosted/managed services to play a central role in business development. The world is on the move to cloud computing so be careful about signing any long term software licencing deals that don’t have an option to move to cloud technology.