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McKinsey-Sandhill Report Confirms SaaS Rise

By David Sims, TMCnet Contributing Editor

A recent survey of more than 850 enterprise software customers by McKinsey and Sandhill “confirms the company’s projections that SaaS (News - Alert) adoption is on the rise.”

 

The report indicates “good news for the industry, despite the current softness in the U.S. economy. Because the majority of the activity in the software sector occurs in North America, having customers on the lookout for innovative offerings provides some assurance that, despite industry consolidation, there’s growth potential ahead.”

 

According to the McKinsey and Sandhill report, “another bright spot for the industry is the accelerated adoption of subscription and on-demand purchasing models by enterprises over the past year.” Evidently last year’s survey showed that companies expected to spend 21 percent of their software budgets by 2009 on these pricing models, which translates to $71 billion.

 

According to recent Forrester (News - Alert) surveys, global software spending rose from $313 billion in 2007 to $341 billion for 2008. The McKinsey and Sandhill Survey calls this “good news for SaaS vendors who by the nature of their products sell either by subscription or on demand.”

 

The marquee name in the Software-as-a-Service CRM market, Salesforce.com, has posted $920 million in revenue already this year.

 

“With the majority of our product development completed, the company will focus the majority of its time and efforts on targeted sales initiatives for our 3 core products,” says Frank Connor, CEO of SaaS vendor F3 Technologies, which sells CRM, project management, human resources and accounting products and depicts itself as a challenger to Salesforce.com (News - Alert).

 

Since “there are some large enterprises converting to the models that underpin SaaS offerings, there is a clear opportunity for those that can offer the right product in combination with the right selling strategy” according to the McKinsey and Sandhill report.

 

David Sims is a contributing editor for TMCnet. To read more of David's articles, please visit his columnist page. He also blogs for TMCnet here.

Edited by Stefania Viscusi