Global SaaS Market growth will continue & drive software sales growth in 2013

Worldwide Software as a Service (SaaS) Market is expected to continue its growth in 2013 as more and more businesses are adopting SaaS and most of the Independent Software Vendors (ISV) including the big vendors like IBM, Oracle, SAP, Salesforce.com, etc. have increased their product offerings in the SaaS segment. There has also been a spate of acquisitions in the SaaS segment where ISVs acquired specialist small and medium SaaS vendors and product developers and integrated acquired software and product offerings into their core products. The SaaS software market will increase 25 percent in 2013 to $59 billion, a 25 percent increase. In 2014, the market is expected to total $75 billion, according to Forrester Research. Gartner predicts the size of the SaaS market will grow from $16 billion in 2012 to more than $21 billion in 2015. Mark Hurd, President of Oracle has said that cloud computing services will reach $72.5 billion over the next five years from 2010 levels of $21.5 billion and estimates that by 2014 around 14 million more jobs will be created due to cloud computing.

In June and July of 2012, Gartner conducted a survey of 556 organizations across 10 countries and within four regions (North and South America, Europe and Asia/Pacific) which highlighted 71 percent of organizations have been using SaaS for less than three years. According to the survey, investments in SaaS are expected to increase across all regions. Seventy-seven percent of respondents expected to increase spending on SaaS, while 17 percent plan to keep spending the same. More than 80 percent of respondents in Brazil and Asia/Pacific indicated more spending on SaaS applications over the next two years. The U.S. and European countries were not far behind with 73 percent of U.S. respondents and 71 percent of European respondents intending to increase spending on SaaS. Gartner Research vice president Charles Eschinger said despite the fact that adoption of on-demand deployment model by business organizations has begun more than a decade ago, but SaaS popularity has increased significantly within the past five years. This rise in adoption in the past few years is because the development of the SaaS technology and maturity of the SaaS business and computing models that led to diminishing of business concerns related to security, response time and service availability.

Gartner survey also highlighted that customer relationship management (CRM) and enterprise content management (ECM) as the applications most often being newly deployed. Supply chain management (SCM), Web conferencing, teaming platforms and social were the applications picked most as replacements for on-premises solutions. But the business decision to migrate to SaaS depends on business criticality of the application/solution along with other critical factors like geography, business agility, usage scenario and IT architecture and few organizations will completely migrate to SaaS but with a mix of SaaS and traditional on-premises application deployment models, according to Gartner’s Eschinger. Another fact is that integrating SaaS tools to existing IT infrastructure is both costly and complex and IT departments have to work closely with SaaS vendors in terms of planning and migration to SaaS platforms. But overall SaaS adoption by business organization even by large organizations will continue to rise and is one of the key revenue generators for Independent Software Vendors for the next few years.  

Global IT Spending 2012 – Key Trends

IDC predicts that worldwide IT spending will grow 6.9% YoY to $1.8 trillion in 2012 and  20% of this total spending will be driven by smartphones, media tablets, mobile networks, social networking and Big Data analytics. Forrester research says IT purchases will be $2.042 billion in 2011 and $2.154 billion in 2012, with the growth driven mostly by underlying economic growth and adoption of newer technology. Gartner forecasts IT spending will be $3.7 trillion (7.6% YoY) in 2011 and expects the IT spending to reach $3.9 trillion (4.6% YoY) in 2012. Gartner IT spending includes Telecom spend and without telecom spend, total IT spend is $1.53 trillion (8.4% YoY) in 2011 and $1.62 trillion (6% YoY) in 2012.

IT spending and budgets did not see any cuts in 2011 but there will be cuts in spending in 2012. There will not be any drastic cuts as IT spending is critical for ongoing business success, but spend scrutiny and conservative plans are expected. The worst case scenario of the total unraveling of the Euro crisis is that the IT spending will increase by 1-2% YoY. This growth will be driven by the emerging economies like India, China, etc. Due to the Euro zone crisis and US Economic slow down IT spending is expected to grow by 4- 6% YoY way below the current levels of 7-10% YoY. Europe will be most affected market compared to US market.

Hardware, Software, IT Services will see single digit growth in 2012. Spends on these categories will be slow as companies will try to cut down spend and will not go for up gradations aggressively. Only business critical spend will be made. Mobile devices such as notebooks, tablets, and smartphones will overtake the PCs. Mobile applications and operating systems revenues will grow and will even surpass the mainframes revenues and the competition is expected to intensify with major vendors like Microsoft, Amazon, Apple and Google coming into market with new offerings.

Cloud Computing will become more competitive as all the major vendors like Amazon, IBM, Microsoft, Google, etc are focusing on creating application platforms and ecosystems. Not only these major vendors but also Indian Outsourcing vendors are developing the cloud based offerings and platforms and are aggressively marketing these to the clients. According to IBM, the demand for cloud computing is on the rise as organizations look to expand the impact of IT to deliver innovative services while realizing significant economies of scale. IDC analysts expect that cloud spending will be $36 billion next year. M&A is also expected in cloud space where the major vendors look to buy smaller and medium players looking to add more applications and content.

Social media is on the rise and it is expected to be critical for the consumers as well as businesses. Businesses are looking for social media tools that help them reach their customers, track their reputation and feedback of the customer and use it internally in the organization to interact with employees. Social media analytics is expected to be a big business as the businesses look for tools and gain critical insights from these tools to determine the effectiveness of their marketing programs, call center performance and cross-selling initiatives. There have been acquisitions in this segment where larger vendors are buying out smaller niche players with good product and platform and integrate it in their core offerings.

According to IDC, Big Data is critical in 2012 as the volume of digital content grows to 2.7 zettabytes (ZB), up 48% from 2011. More than 90% of this information will be unstructured (such as images, videos, MP3 files and files based on social media and Web-enabled workloads) -- full of rich information, but challenging to understand and analyze. 2012 is likely to be a busy year for Big Data-driven mergers and acquisitions as large IT vendors seek to acquire additional functionality. Business Intelligence and analytics key to unlock the data and use the data in organizational decision making and strategy formulations. Analyzing in real time is the future of analytics.

IT and BPO will also see growth in 2012. Clients will look for offerings from vendors that will have significant impact on their businesses. Vendors are adopting cloud computing and also offering end to end platform offerings and are increasingly looking for outcome based offerings that will increase their margins. Indian Outsourcing vendors are forecasting and preparing for the volatile economic situation and are actively interacting with clients on regular basis. As of now vendors are positive but they are expecting definite headwinds in 2012 and are confident to tackle such scenario.

App stores with lot of new applications, intelligent devices with sensors, tablets, and smart phones are being launched and these devices and apps are creating new businesses and are adding more functionality and are being actively integrated by the large vendors in their core product offerings. 2012 will see many new offerings in terms of hardware, software and services and despite the tough and volatile economic environment, vendors will launch them.

2012 will be a tough year and businesses and clients both are cautious about the way that things will turn. The second half of 2011 was supposed to be slow and budget/spending cuts were expected but there were not any drastic cuts. There is a least possibility of a deep recession like the one in 2008 but the down grades and the economic issues will take time for resolving and this volatile economic situation is expected to continue in 2012. Businesses are having strong balance sheets and financially strong but the overall consumer confidence is low due to high unemployment rates and fall in incomes. Emerging markets play a critical role for keeping up the growth and how much these economies are affected by the Euro Zone debt crisis and US economic slow down is also critical fact and these economies can always look for their domestic market as the governments and businesses in these markets are investing in IT for good governance and citizen services.

Global SaaS, PaaS, IaaS and BPaaS Market 2011 and Forecast

Cloud computing includes Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Business Process as a Service (BPaaS). SaaS is the highest level of the cloud and includes actual cloud applications. SaaS segment is the largest segment in the overall Cloud Computing Market. Customer relationship management (CRM), Content, communications and collaboration (CCC) market and Enterprise resource planning (ERP) revenue are the key sub segments respectively. North America, followed by Europe is the key markets for SaaS. Asia Pacific and Latin America are key growth markets too. Adoption is being driven by availability of on demand software, understanding of the model, increasing interest and pressure on IT managers to reduce costs. Data security concerns, outages, lack of understanding of the cloud and infrastructure, and integration with existing infrastructure are concerns. According to Gartner SaaS market is expected to reach $ 21.5 billion in 2015 from $12.1 billion in 2011. IDC estimates it to reach $ 40.5billion in 2014 from $ 21.8 billion in 2011 and Forrester estimates it to reach $78.4 billion from $21.2 billion in 2011. Google, Citrix, Salesforce.com, NetSuite are key players.

PaaS is the middle level and builds upon the IaaS layer and provides an application development platform for the cloud. Gartner says, PaaS products primarily supported application server capability, but the market has expanded to other middleware capabilities as a service, such as integration, process management, and portal and managed file transfers (MFTs). Gartner analysts said PaaS offerings are likely to expand the application integration and middleware (AIM) market by bringing in a new range of organizations that otherwise would have been packaged application and office software users. Vendors in this space include Windows Azure, Heroku and SalesForce’s Force.com. Salesforce.com has the most mature PaaS. According to Gartner PaaS market is expected to reach $ 1.8 billion in 2015 from $707.4 million in 2011. Forester estimates it to reach $9.8 billion in 2015 from $820 million in 2011.

IaaS is the lowest level of the cloud technology stack. It provides operating system support, storage and processing. Vendors in this sector include Google App Engine and of course Amazon’s (news,site) latest whipping boy AWS EC2. Infrastructure-as-a-service (IaaS) will shift from public clouds to virtual private clouds, Forrester Research projects. While adoption remains high, the size of the market will shrink and public cloud services will cost less in the future because the cost of inputs will continue to decline. According to Gartner IaaS market is expected to reach $ 22 billion in 2015 from $5.6 billion in 2011. IDC estimates it to reach $ 15 billion in 2014 from $ 3.4 billion in 2011 and Forrester estimates it to reach $78.4 billion from $21.2 billion in 2011.

BPaaS is even higher up than SaaS and it includes technology, people, process and smart analytics wrapped in a simple "pay-as-you-go" commercial model. It allows companies to minimize or eliminate substantial upfront costs.  BPO outsourcing providers such as India, China and Latin America will likely make a play in this area. Traditional BPO providers are setting up data centers to offer cloud computing services to their clients and Cloud computing inclusive of BPaaS provides a big opportunity for service providers. According to Gartner BPaaS market is expected to reach $ 133.5 billion in 2015 from $71.7 billion in 2011. Forester estimates it to reach $3 billion in 2015 from $530 million in 2011.