Software as Service Draws Interest, Doubts

Adoption of hosted applications among large companies jumped last year, but many CIOs and IT managers will not consider these software-as-a-service (SAAS) products due to concerns about security, cost and integration, according to a Forrester Research study.

In a 2007 survey of just over 1,000 IT decision makers, 16 percent said their companies were either already using or piloting SAAS products, a 33 percent increase from 2006.

Those who said they were either interested in or planning to pilot hosted applications remained the same at 46 percent, while those who aren't interested dropped from 41 percent to 37 percent, Forrester said in the report, issued Wednesday.

Respondents who are favorable to SAAS products cite shorter implementation, lower up-front costs and pay-as-you-go pricing as reasons, wrote analyst Liz Herbert, the report's author.

Interest in SAAS isn't consistent across application categories. Popular applications include those for human resources, collaboration and customer relationship management. SAAS is less used for enterprise resource planning, supply chain management and Web 2.0 tools like wikis, blogs and RSS.

Respondents who aren't considering SAAS products cited limitations in the ability for hosted applications to be integrated with software they have installed in-house and to be customized. These IT executives also believe that hosted applications that are leased and paid for under a subscription model cost more in the long run than software that is bought and installed on the company's servers. They also mentioned a variety of security concerns, including fear about having the software and data hosted in a third party's data center and concerns about application performance and availability.