Survey Analysis: Buyers Tell Us About SaaS and Cloud Adoption Through 2014

Buyers of software as a service or cloud applications across 10 countries tell us that they are now replacing existing software with SaaS instead of net-new software. Their experience with SaaS applications is less than 2 years old and based on differing levels of maturity and type of application.

• Users are implementing software as a service (SaaS) solutions either as replacements to legacy applications or in "greenfield" situations. In the past 12 months, Gartner has seen a decline in the proportion of SaaS deployed to augment existing applications.
• Distinct regional patterns of adoption exist. In mature markets, SaaS tends to be a replacement to existing systems, whereas in emerging markets, SaaS is the first solution to be implemented to support the business.
• The role of decision makers regarding cloud/SaaS applications is changing and varies by region. In North America, more decisions are being made jointly by the business and IT, while Asia/Pacific results indicate more decisions are being made by IT management, and Europe shows greater executive involvement.
• While having a low existing adoption rate itself, platform as a service (PaaS) is a major decision-making preference when users are selecting SaaS solutions.

• Product management executives in emerging markets should design and offer SaaS solutions for customers seeking net-new deployments, eschewing efforts that would otherwise focus on systems to replace legacy systems.
• Ensure that new SaaS solutions reflect the needs of the markets where they are to be launched. In mature markets, product management executives should focus on SaaS offerings that can replace legacy systems.
• Design go-to-market approaches that match the market characteristics of each region. Make it clear what precisely would be different in these approaches between regions as a result of net-new versus replacement positioning.

This document was revised on 28 November 2012. The document you are viewing is the corrected version. For more information, see the Corrections page on gartner.com.

Gartner publishes a quarterly forecast for cloud services that includes the enterprise application SaaS forecast . The SaaS forecast projections are based on our market estimates for total software revenue, and like other Gartner enterprise software market forecasts, we use a mix of buy- and supply-side data, with a top-down and bottom-up approach based on vendor revenue.

To create a balanced view, Gartner conducts bottom-up end-user surveys during the year that provide additional analysis input. During June and July 2012, Gartner conducted a survey across 10 countries and within four regions (North America [the U.S.], Europe, Asia/Pacific and Latin America [Brazil]) to understand trends in the movement to SaaS from traditional software license models and to gain insight into how and where software budgets were being spent. Respondents were provided with Gartner's definition of SaaS:

An enterprise application that is owned, delivered and managed remotely by one or more providers. The provider delivers an application based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics.

Primary objectives of the survey were to address adoption of SaaS and PaaS across and within various enterprise and vertical application markets as follows:

• To understand potential regional differences in usage, trends and future adoption patterns. In addition, data was gathered at the country level to identify differing patterns of adoption and usage geographically.
• Gain insight into the maturity of SaaS use or how long SaaS has been used within organizations; whether governance mechanisms exist; and any shifts (historically or in the future) about the role/title of decision makers.
• To see if business plans call for migration from on-premises to SaaS, or vice versa, and why. We also wanted to understand potential migration to help gauge whether SaaS deployments were replacements for on-premises applications or net-new solutions, or adopted for other reasons.

The survey was the fifth in a series of annual updates begun in 2008 and now provides trending data over five years at 12- to 18-month intervals. An objective of the current survey was to determine if usage patterns and investment intentions have changed or stayed the same and to identify other key trends around the use of system integrators, PaaS and vertical-specific software.

We also modified the existing list of countries, replacing Sweden with Russia and adding Brazil. The countries included within the 2012 survey were the U.S., Brazil, the U.K., Germany, France, Russia, China, India, South Korea and Australia. This change allows us to look at mature IT market versus emerging market patterns within the study.

As part of the analysis, we asked those designated as non-SaaS users why they were likely to never use SaaS. The most commonly cited reasons (see Figure 1) were that they are not sure SaaS is the right deployment option (36%) and they are satisfied with their existing on-premises software solution (30%), followed by their having no current requirements for more software functionality (19%) or a perception that they are locked in by their current solution (14%).

Applicability Concerns of SaaS and Satisfaction With Existing Solutions Inhibit Adoption, 2012

Note: Number of respondents equals 257; multiple responses were permitted.
Source: Gartner (October 2012)

While the perceived benefits of SaaS are well-accepted by most organizations, there remains a sizable addressable market that is reluctant to move toward this delivery model. SaaS inhibitors, many of which impact emerging markets, include the following:

• Limited broadband availability and network instability are restricting growth in emerging markets.
• There is a lack of regulations and legislation to address privacy and cybercrime.
• Data security in industries such as financial services requires data to reside within the country of origin.
• Much of the historical opportunity has required more customization and flexibility, which is difficult for a pure multitenant SaaS solution to achieve.
• Current satisfaction with existing on-premises solutions and investments in applications, capital and organizational expertise limit SaaS growth.

Survey participants were then asked how long their organization had been using SaaS. At an aggregate global level, results show that 71% of organizations responding have been using SaaS for less than three years (see Figure 2). This indicates that interest in the SaaS deployment model remains strong and continues to expand with later adopters. Brazil had the largest number of new users, with 27% using SaaS for less than one year. Gartner believes usage of SaaS in Latin America is still highly fragmented, and although many organizations are new in using SaaS, the numbers that are using SaaS for five years or more are not few (12 respondents).

Other recent Gartner cloud services research has shown that early SaaS adoption leans toward smaller pilot projects in large organizations or small or midsize businesses for some market applications, such as sales force automation or email. While a majority of respondents have experience with SaaS applications for at least two years, the number of SaaS applications per respondent is now much higher than in previous years' surveys and moving into larger organizations.

We also advise that cloud is not always the most appropriate model for all companies. The decision to deploy SaaS-based applications within an enterprise depends on the business criticality of the solution, as well as the organization's geography, business agility, usage scenario and IT architecture. Hence, few organizations will completely migrate to SaaS and will live with a mix of SaaS and traditional on-premises application deployment models, with a focus on integration and migration between different deployment models.

Source: Gartner (October 2012)

On a worldwide basis, we have observed a shift in reasons for SaaS adoption – from primarily extensions to existing applications to net-new deployments or replacements of existing on-premises applications in 2010 – and this shift continued even more aggressively in this survey. In this year's study, we received slightly mixed results by application type. About half the respondents in Asia/Pacific indicated the primary adoption driver of SaaS was net-new deployments, while the U.S. and European respondents indicated that their strongest driver was to replace an existing on-premises application.

It is not very surprising that SaaS is being deployed as net-new deployments in Asia/Pacific. This is because many users in emerging countries are relatively new businesses, with few legacy systems, and most major SaaS vendors don't have a presence or localized solutions for emerging Asia/Pacific. However, mature areas of Asia/Pacific, such as Australia, have existing enterprise systems that are starting to be replaced, as in the U.S. and Western Europe.

Extending on-premises solutions has been a consistent SaaS driver as businesses continue to seek innovative solutions that are quick to deploy and that often leverage the capabilities and data repositories of existing on-premises solutions. Since many of these on-premises applications have now been in place for more than a decade, they are not designed for collaboration, social or mobile users, or deployment beyond the four walls of an organization, and most were heavily customized. Leveraging SaaS deployments as an extension was a logical path for many companies that were reluctant to modernize legacy deployments.

However, the percentage of respondents using SaaS as an extension in the past two surveys continues to decline, indicating a growing trend toward SaaS as a replacement for legacy applications going forward. While few respondents continue to indicate that replacing shelfware is a primary driver, technology advancements, costly upgrades and increasing annual maintenance fees are driving businesses to replace on-premises software with SaaS solutions. While not asked directly, another presumption is that SaaS applications are not a replacement but simply a new way of deploying solutions.

Among respondents, CRM and ECM lead new deployment solutions, while SCM and Web conferencing/teaming platforms/social software suites lead replacements for on-premises solutions (see Figure 3). ERP (which contains HR, enterprise asset management, manufacturing operations and financials) leads temporary prototype deployments. For ERP, this is a logical trend because these back-office areas are typically more stable, lack investment and change less often than collaborative solutions or supply-facing or customer-facing sales-driven applications, such as CRM.

Source: Gartner (October 2012)

To gauge the growing interest in PaaS, we asked respondents to indicate the importance of the vendor's ability to provide PaaS capability when selecting a SaaS provider. Worldwide results are shown in Figure 4. More than 96% of respondents indicated that PaaS capabilities are a requirement when their organizations selected SaaS providers.

Source: Gartner (October 2012)

While there is overwhelming sentiment among buyers for a provider to have PaaS capabilities, the requirement has grown over the past year from 85% of survey respondents, which indicates a growing awareness and desire for the two cloud layers to be tandem-sourced. Regionally, and similar to last year's study, responses varied and are reflective of broader adoption patterns. The highest percentage of positive responses came from Asia/Pacific, where more than 27% of respondents indicated PaaS capability was a requirement, compared with North America, where only 13% responded in like. On the opposite side, 22% of North American and 26% of European respondents reported that PaaS was either not at all or only somewhat important. Gartner estimates that these regions represent approximately 72% of SaaS revenue for 2012, which may partially explain the relatively low revenue projections for PaaS to date. Although PaaS adoption is still modest compared with SaaS adoption, Gartner expects aggressive growth rates for the forecast period. Please check for quarterly updates to forecasts for our most recent assumptions for these markets.

On closer inspection, across all regions and countries, a very small percentage of survey respondents plan to decrease spending on SaaS, and a fairly small percentage plan to keep it the same (see Figure 5). All countries reflect broader adoption patterns of increased spending on SaaS, continuing the market's growth. The highest percentage of positive responses came from Brazil and Asia/Pacific, where more than 80% of respondents indicated more spending on SaaS applications over the next two years, whereas the U.S. and European countries are not far behind in their intentions to spend more going forward but have a larger installed base of applications that need to move or be integrated.

Source: Gartner (October 2012)

Seeing such high intent to increase spending isn't a huge surprise as the adoption of the on-demand deployment model has grown for more than a decade, but its popularity has increased significantly within the past five years. Initial concerns about security, response time and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become more widespread. Usage and vendors' on-demand ecosystems continue to evolve to provide additional business and technology services, more-vertical-specific functionality, and stronger communities of partners and buyers. Although some attrition occurred during 2009 due to business workforce reduction, nearly all SaaS vendors grew revenue during the economic downturn as buyers continued to confirm their acceptance of on-demand solutions. Moving forward, the same resilience pattern is expected with the new economic uncertainties in 2012. Expect adoption of SaaS to far outpace market growth through 2016.

The survey was developed collaboratively by a team of Gartner analysts who follow the software and industry markets. It was reviewed, tested and administered by Gartner's Primary Research Management organization.

Qualified respondents (592) were knowledgeable of their division's or company's business application and SaaS initiatives and were able to provide direction on current and future plans on leveraging SaaS-based solutions within at least one of the following enterprise application software markets: BI; ERP; SCM; CRM; PPM; content, communications and collaboration; or vertical-specific software. Respondents were from a range of industries, countries and company sizes (see Figure 6). The data collection interviews were conducted online or via computer-assisted telephone interviewing and were conducted in the respondent's native language with the following characteristics:

• The sample universe was drawn from external panels of IT management professionals, and qualified respondents had to be end-user organizations (no software vendors or external service providers were included).
• Respondents were currently using SaaS or were planning to use it during the next 12 months.
• Respondents had to use one or more of the following applications: BI; CRM; ERP; SCM; content, communications and collaboration; PPM; office suites; or vertical-specific software.
• The study was conducted from June through July 2012.
• The study was conducted across four regions: Asia/Pacific, Europe, North America (the U.S.) and Latin America (Brazil).

Although Gartner has drawn the sample in an attempt to represent the characteristics of the target population, the exact relationship between the sample and the broader market is unknown because it cannot be finitely determined. We do, however, believe this can be used as a proxy to represent directional adoption and usage trends for the regions surveyed.

Source: Gartner (October 2012)

For a complete set of definitions used in this document, see "Market Definitions: Software."

Gartner conducted its annual SaaS survey in June and July 2012. The survey focused on identifying usage patterns and key trends for SaaS within the enterprise application and vertical-specific software markets, covering 10 countries and 12 vertical markets within three major regions. All qualified respondents globally (592) and in Brazil (54) were either using or planning to use a SaaS solution within the next 12 months.

Adoption of SaaS has grown dramatically in the past decade among users of enterprise software solutions, but it varies widely between and within markets and industries. The survey highlights trends concerning usage and the current migration activity between deployment models, as well as projected future usage and investment.