SaaS still losing out to packaged product

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SaaS still losing out to packaged product

Almost a third of enterprises and half of small businesses still favour the packaged version of major software applications rather than a hosted one, a Forrester survey has found.

The annual survey of software spending and adoption trends found that while concerns and barriers to software-as-a-service (SaaS) have diminished in the past 12 months, many businesses are still reticent to use the model.

One in three enterprises cite security concerns as the prime reason they aren't interested in SaaS, while 39 per cent of SMBs (small and medium businesses) cite total ownership costs as the major drawback.

It also seems "few firms" prefer to turn to SaaS or a hosted solution when more traditional options are in front of them.

When implementing a major application, Forrester found a packaged application or application modules are the most preferred deployment options for 33 per cent of enterprises and 45 per cent of SMBs.

The next preferred option for all classes of customer is a tailored solution assembled from existing custom and packaged application modules.

In good news for IT departments, the survey of 2,200 IT executives revealed software budgets will hold relatively steady.

A global Gartner survey released earlier today revealed IT budgets were cut by nearly five per cent in the first quarter of 2009.

"Enterprises allocated 16 per cent of their IT operating budgets toward expensed software costs in 2008 and plan to allocate 17 per cent over the next year," Forrester said.

"SMBs allocated 19 per cent toward expensed software costs in 2008 and plan to allocate 19 per cent in the next 12 months."

The top software initiative for most businesses this year is modernising legacy applications, the survey found.

Updating key legacy applications was cited as the top initiative for both enterprises and SMBs at 64 per cent and 55 per cent, respectively.

"The costs of operating monolithic legacy applications makes them unsustainable, and these survey results show that firms are seeking efficient ways to modernise," said Jean-Pierre Garbani, vice president and principal analyst at Forrester.

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