Growth in the enterprise application software market is being driven by cloud-based software-as-a-service (SaaS) offerings, and will soon reach $150 billion in annual revenues, according to new research from Gartner Inc.
The market watcher revealed its revenues forecast last Thursday, saying that application software sales would grow by 7.5 percent in 2015, before exceeding $200 billion in 2019. Driving this growth will be “key IT upgrades to core enterprise applications”, plus the shift towards subscription-based software models, Gartner said.
According to Gartner, “alternative consumption models” to traditional on-premise lincenses now count for over fifty percent of new software implementations. Together with SaaS, that includes things like on-premise subscriptions, hosted licenses and open-source software like OpenStack.
The growth of Big Data analytics in the enterprise is one of the biggest drivers of cloud-based SaaS, Gartner said. In its forecast, the analyst firm said over three-quarters of global enterprises will be running advanced analytics as part of a platform or analytics application in the next five years.
“Companies are accelerating the shift in focus of their investments from measurement to analysis, forecasting and optimization,” the report noted. “Deployment of advanced analytics technologies will become critical to achieving those aims.”
Alongside marketing and e-commerce applications, advanced analytics tools rank as the most purchased SaaS software, Gartner revealed.
“The majority of spending is going towards modernizing, functionally expanding or substituting long-standing business and office applications with cloud-based software-as-a-service,” said Bianca Granetto, research director at Gartner, in a statement. “Projects have been approved and budgeted for, often over a multiyear period, meaning the pace of spending and adoption isn’t subject to any impending urgency.”
However, SaaS growth is also being driven by the rising demand for global scale and speedier delivery in the supply chain management industry. SaaS is also being widely adopted as a replacement for corporate human resources systems, and should continue to gather steam in this area over the next five years. Gartner predicted.
Gartner also said there will be a trend to delivering enterprise applications via the cloud as a “combination of application components that are differentiated…and not standard software”, as opposed to out-of-the-box solutions. Indeed, Gartner says “build, not buy” applications will account for up to 75 percent of cloud-based apps purchased.
Underlying all of this is the ongoing enterprise shift to cloud-based computing solutions, especially hybrid infrastructures. Gartner says that 15 percent of businesses, are currently provisioned from the cloud, and expects that number to rise to 60 percent by 2020.
As a result, software revenue streams will be disrupted by the rise of “pay-for-what-you-use” business models. “The widespread move from on-premises to cloud office will disrupt the traditional revenue flow as more organizations pay smaller increments over a longer period of time,” Gartner concluded.
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