Revenue From Hosted Office Apps Lags Behind CRM

Businesses appear to be happy to adopt the so-called Software as a Service (SaaS) model, especially when it comes to crucial applications such as enterprise resource planning (ERP) or customer relationship management (CRM), but less data-intensive office applications are failing to attract the same levels of spending.

These are the findings of a study by analyst group Gartner, released this week, which also forecasts that revenues from the SaaS market are set to reach $7.5bn (£4.5bn) in 2009 – a 17.7 percent increase from 2008. This growth is set to continue and, by 2013, the analyst believes the worldwide revenue from SaaS will reach over $14bn.

“The adoption of SaaS continues to grow and evolve within the enterprise application markets,” said Sharon Mertz, research director at Gartner. “The composition of the worldwide SaaS landscape is evolving as vendors continue to extend regionally, increase penetration within existing accounts and ‘greenfield’ opportunities, and offer more-vertical-specific solutions as part of their service portfolio or through partners.”

Whether it is down to the way that Gartner collects its information, or the fact that tools such as Google Docs are supported by advertising, applications such as CRM and collaboration tools such as email continue to dwarf the amount spent by end-user organisations on hosted office technology. Around $2 billion has been spent on CRM software in 2009 so far, according to Gartner, while office suites garnered just $68 million in the same period.

Google recently gave Google Docs a makeover including changing the look and feel of its front end and adding shared folders, batch file uploads and more than 50 other new features.

The relatively modest spend on hosted office tools could be a result of many companies continuing to pay license fees for Microsoft Office, or the fact that staff are using online applications such as Google Docs without their companies’ knowledge. But, as Microsoft continues to transition its applications to the hosted model, the weighting for spending on SaaS applications could change.

Last month, Microsoft announced details of a stripped-down advertising-supported version of Office which will be available in the first half of 2010, according to a Microsoft spokesperson, and ship on machines loaded with Windows 7.

Gartner identified content, communications and collaboration and CRM as generating the largest amount of SaaS revenue. “The market landscape for on-demand CRM continues to evolve as the availability and usage of SaaS solutions becomes more pervasive,” said Mertz. “The rapid adoption of SaaS and the marketplace success of Salesforce.com have compelled vendors without an on-demand solution to either acquire smaller niche SaaS providers or develop the solution internally in response to increasing buyer demand.”