IDC: very soon, a third of all software delivered via cloud

The Software as a Service market is growing by 25 percent a year. Many new investments are being steered toward Infrastructure and Platform as a Service.
Written by Joe McKendrick, Contributing Writer

In a new market projection, IDC confirms what many industry watchers have been thinking intuitively all along: that more and more software is being delivered as a service, or via the cloud.

A new IDC study shows that the Software as a Service (SaaS) market had worldwide revenues of $13.1 billion in 2009. IDC forecasts the market to reach $40.5 billion by 2014, representing a compound annual growth rate of 25.3%.

So what does this mean? It means increasingly large chunks of IT are being delivered in service mode, versus project-by-project, or application-by-application installed or built and maintained in the data center.

By 2012, IDC expects that less than 15% of net-new software firms coming to market will ship a packaged product (on CD). By 2014, about 34% of all new business software purchases will be consumed via SaaS, and SaaS delivery will constitute about 14.5% of worldwide software spending across all primary markets.

A lot of this activity will be around Infrastructure and Platform-as-a-Service deployments as well. 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.

Robert Mahowald, vice president of SaaS and cloud services research at IDC put it this way: "Enterprise IT plans are rapidly shifting to accommodate the growing choices for sourcing most or all IT software functions," he says. This includes everything "from business applications to software development and testing, to service and desktop management, as SaaS services become available."

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

The traditional license is on the way out, IDC adds. Traditional packaged software and perpetual license revenue are in decline and IDC predicts that a software industry shift toward subscription models will result in a nearly $7 billion decline in worldwide license revenue in 2010. As a result, a permanent change in software licensing regime will occur.

(Illustration: CNET)

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