“Several factors are spurring the growth. New software design and delivery models allow many more instances of an application to run at once in a common environment, so providers can now share one application cost effectively across hundreds of companies—a vast improvement on the old client-server model. Bandwidth costs continue to drop, making it affordable for companies to purchase the level of connectivity that allows online applications to perform gracefully. Perhaps most important, many customers are eager for the shift, as they’re frustrated by the traditional cycle of buying a software license, paying for a maintenance contract, and then having to go through time-consuming and expensive upgrades. And finally, the successes of early leaders, such as salesforce.com and WebEx, have demonstrated the viability and value proposition of this model.” ((Dubey, Abhijit and Wagle, Dilip, June 2007. “Delivering Software as a Service.” McKinsey Quarterly. Retreived from http://www.mckinseyquarterly.com on July 10, 2007.))
And according to a chart on the McKinsey site, HCM applications are leading the way. Core ERP modules for CRM, payroll and HCM are already migrating to SaaS models for both large, medium and small organizations, where other areas like financials, IT and business intelligence are not moving as fast.
“The first wave of adoption for software as a service has been under way for several years. Companies are eager to acquire the technology for human-resources applications such as CRM and payroll and for collaboration tools that aren’t mission critical, involve relatively low data security and privacy concerns, have a distributed user base, and require little integration with on-premise applications and little customization.” ((Ibid))
I think the general theme here is that the market seems to be seeing advantages to the SaaS model. Whether this is a temporary trend, or if it’s simply the next (better) evolution of hosting services remains to be seen.