The forecast of a 20.7% increase in SaaS revenue this year compared to 2010 has come from analyst house Gartner which is also predicting revenue levels will stay at healthy levels through the next four years.
A combination of factors including more customer familiarity with SaaS, willingness by users to explore cheaper and more flexible options as well as the ability for monthly payment models has seen a positive reaction in sales.
"After more than a decade of use, adoption of SaaS continues to grow and evolve within the enterprise application markets. This is occurring as tighter capital budgets demand leaner alternatives, popularity and familiarity with the model increases, and interest in platforms a service and cloud computing grows," said Tom Eid, research vice president at Gartner.
Eid added that one of the stumbling blocks to wider SaaS adoption, security concerns, were being overcome and customers were now more interested in taking advantage of the benefits.
"Usage and vendors' on-demand ecosystems continue to evolve to provide additional business and technology services, more vertical-specific functionality, and stronger communities of partners and buyers," he added.
The most popular SaaS application remains CRM and other communications and collaboration tools which remains a large chunk of the hosted market.