A question of demand

So how big is Saas in terms of revenue and business potential? Is it even worth pursuing?
Sam Law at The Damaged Pixel Blog mentioned this story from The Economist: http://www.economist.com/business/displaystory.cfm?story_id=10431816

Here's a summary of what it says:

• Investors keep throwing money at SaaS companies, such as NetSuite, which saw a 37% rise in its IPO price on the first day of trading. This seems to be a hot market indeed.
• Skeptics always said that data privacy and reliability would never make this business model feasible; however, NetSuite, Salesforce.com and a myriad of others are proving them wrong.
• As an example Salesforce.com, the market leader, serves more than 38,000 firms and recently signed up its millionth paying user. According to Gartner, the market for web-based applications reached $5.1 billion in 2007 and will grow to $11.5 billion by 2011—by which time it will account for over one-quarter of software sold to companies.
• However it is still not very clear where the profits are to be made. NetSuite offers a variety of on demand applications, while Salesforce.com is the leader in on-demand CRM. Oracle, Microsoft, and SAP have also jumped on the bandwagon.
• Nevertheless, profits are minimal. NetSuite has never posted a profit, while Salesforce is barely profitable and has an astonishing price-to-earnings ratio of 660!
  
• Other worries that arise are also how each on demand company will compete and stay alive. Salesforce.com is offering a platform for on demand applications called Force.com, but as CEO Marc Benioff points out: thousands of applications have already been written for the platform, but it is too early to say whether the idea will work.

Here's the fancy graph that shows the $billions that this industry is capable of producing:
So Gartner says that the on demand industry will grow from $5billion currently to around $12billion. Each sector seems to be predicted at growing at about the same rate. Collaboration seems to be the most wanted sector, followed by CRM.

Good read!