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July 26, 2010

SaaS Revenue to reach $40.5bn by 2014, IDC

One-third of all new business software purchases to be consumed via SaaS by 2012

By CBR Staff Writer

Software as a Service (SaaS) market had worldwide revenues of $13.1bn in 2009 and is forecast to reach $40.5bn by 2014, representing a compound annual growth rate of 25.3%, according to a study by market research and analysis firm IDC.

By 2012, IDC expects that less than 15% of net-new software firms coming to market will ship a packaged product (on CD). By 2014, about 34% of all new business software purchases will be consumed via SaaS, and SaaS delivery will constitute about 14.5% of worldwide software spending across all primary markets.

The market observer said that by 2012, nearly 85% of net-new software firms coming to market will be built around SaaS service composition and delivery; by 2014, about 65% of new products from established ISVs will be delivered as SaaS services; and SaaS-derived revenue will account for nearly 26% of net new growth in the software market in 2014.

IDC said that traditional packaged software and perpetual license revenue are in decline and predicts that a software industry shift toward subscription models will result in a nearly $7bn decline in worldwide license revenue in 2010. As a result, a permanent change in software licensing regime will occur.

According to the firm, SaaS segment mix is expected to shift toward infrastructure and application development and deployment/PaaS, and away from US dominance. IDC expects that by 2014, applications will account for just over half of market revenue, as a result of increasing IT cloud spending by enterprise IT groups and commercial cloud services providers relative to end-user spending.

Robert Mahowald, vice president of SaaS and cloud services research at IDC, said: "The SaaS model has become mainstream, and is quickly coming to dominate the planning – from R&D, to sales quotas, to partnering, channels and distribution – of all software and services vendors.

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"Enterprise IT plans are rapidly shifting to accommodate the growing choices for sourcing most or all IT software functions, from business applications to software development and testing, to service and desktop management, as SaaS services become available from established vendors and new models for accessing functionality in the cloud creates lower-cost options and more tailored models for consuming IT services."

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