Cloud software is no longer a fringe market. The $15 billion global software as a service (SaaS) business is growing at about three times the rate of traditional, on-premises software. SaaS represents 12 percent of global spending on enterprise applications, and cloud-based applications are already firmly entrenched in a handful of corporate IT categories. For example, customer relationship management (CRM) and collaboration software are expected to achieve 30 and 50 percent penetration rates, respectively, in those categories by 2015.
The market for CRM software illustrates how quickly cloud players are gaining ground. According to Gartner, Salesforce.com moved from third place in 2010 to become the worldwide CRM market leader in 2012. With over $3 billion in annual revenues and an average growth rate of 30 percent per year, Salesforce.com has become a standard bearer for the power of the SaaS pricing and delivery model.
To better understand the changing landscape, we surveyed more than 80 U.S. CIOs and line-of-business software decision makers in 2012. We also conducted in-depth interviews with 26 of those decision makers and 12 SaaS vendors. SaaS applications are no longer just for midsize businesses and niche users. We found that enterprise-software decision makers have dramatically increased their consideration of cloud software. The ones we interviewed were already investing 5 to 10 percent of their software spending in SaaS solutions. More important, they were willing to consider SaaS solutions for 35 to 60 percent of their applications spending, provided that the timing and the vendor were right.
In short, cloud software represents a classic disruptive innovation that could both transform the way customers buy and use software—and threaten the familiar business models of software giants.
Profiting from the Cloud: How to Master Software as a Service