The days of packaged software are numbered

27 Jul 2010

The Software as a Service (SaaS) market had worldwide revenues of US$13.1bn in 2009. IDC forecasts the market to reach US$40.5bn by 2014, representing an annual growth rate of 25.3pc.

By 2012, IDC expects that less than 15pc of net-new software firms coming to market will ship a packaged product (on CD).

By 2014, about 34pc of all new business software purchases will be consumed via SaaS, and SaaS delivery will constitute about 14.5pc of worldwide software spending across all primary markets.

“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,” said Robert Mahowald, vice-president, SaaS and cloud services research at IDC.

“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, new models for accessing functionality in the cloud will create lower-cost options and more tailored models for consuming IT services.”

By 2012, IDC says nearly 85pc of net-new software firms coming to market will be built around SaaS service composition and delivery; by 2014, about 65pc of new products from established ISVs will be delivered as SaaS services.

SaaS-derived revenue will account for nearly 26pc of net new growth in the software market in 2014.

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

SaaS segment mix will 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. This shift will happen in part as a result of increasing IT cloud spending by enterprise IT groups and commercial cloud services providers (cloud SPs) relative to end-user spending.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years