TRENDS

May 4, 2005

The market for software piped over the Internet as a service reached an all-time high of $4.2 billion in 2004. That sum was nearly 40 percent greater than the total in 2003, according to IDC.

Like its Web services cousin, software as a service (SaaS), in which applications are piped over the Internet at a customer’s behest, has snowballed in popularity.

Companies like Salesforce.com, Siebel, Grand Central Networks and Rearden Commerce are charging into the market opportunity, proposing automated software delivery methods as an attractive alternative to the traditional method of buying packaged applications and downloading them.

Buyers from small and medium-sized businesses (SMB) and divisions of larger companies are the most frequent customers of software as a service, according to IDC.

There is no doubt that software as a service has become a driving force within the software industry, said research analyst Erin Traudt. “Indications are that customer adoption will continue over the next five years and spending will remain on the rise.”

Traudt said in her report that software as a service will grow steadily at more than 20 percent a year until it tops $10.7 billion by 2009. Growth will be driven by new products, customer goals to boost business processes, and new programs to help independent software vendors (ISVs) write software as a service.

Salesforce.com and Siebel are among the first companies to find success with the SaaS distribution model.

Grand Central is another. It offers software integration on-demand.

Rearden launched last winter, professing to be an “Internet concierge” that brings services to corporate employees on demand.

But it is arguably Salesforce.com that has paved the way, revving its marketing machine by holding high-profile news events in New York City with fancy luncheons.

Salesforce.com is planning another product launch/luncheon later this month in the Big Apple. The company now owns the biggest piece of the pie and has shown no signs of slowing down or easing up on innovation.

Traudt said this approach will help SaaS grow as more customers begin to recognize the value of applications provided as services.

“Adoption will grow as more customers experience software as a service and the offerings mature, becoming more readily accepted and available in the market,” Traudt said.

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