China SaaS growth to exceed 'traditional IT'

China's software-as-a-service (SaaS) industry over the next two to three years will see growth rates exceeding the traditional IT industry, which includes on-premise software, according to a new report.

Released Wednesday by Springboard Research, by end-2010, the Chinese SaaS market will expand 56 percent to reach US$171 million. Three out of four respondents in the survey already subscribed to SaaS products, while more than half of the remaining respondents were likely to subscribe to hosted software in the next 12 months.

Devin Wang, business analyst for emerging software at Springboard, said SaaS's appeal and growth in China is boosted by its lower upfront costs, easier maintenance and quick rollouts.

"We see aggressive demand for SaaS in China in the coming months, as corporate IT budgets continue to be under tighter scrutiny and enterprises look to hire fewer technical staff," Wang said in the report.

On-demand applications in security and compliance have the highest penetration rate among the country's SaaS adopters, due to the large number of free on-demand security applications, the study found.

"On-demand security applications have a high penetration, but they account for only a small percentage of total SaaS revenue in China," said Balaka Baruah Aggarwal, Springboard's senior research manager for emerging software. "The majority of SaaS revenue is driven by CRM (customer relationship management), e-mail and collaboration applications."

The research firm also noted that the majority of SaaS applications in China were deployed in isolation. Compared to the overall Asia-Pacific region, Chinese organizations were behind in integrating SaaS components into existing enterprise applications.

A large percentage of SaaS purchases were made during face-to-face interactions, with only 22 percent of purchases transacted online through SaaS vendor Web sites, said Springboard.