Hosted software services provided on-demand will grow 21 per cent to $5bn (£2.5bn) next year, according to analyst Gartner.

Sales of Software as a Service (SaaS) in the enterprise market will continue to grow to $11.5bn (£5.7bn) by 2011, says the report published today.

Adoption of SaaS varies across software markets, contributing as little as one per cent of total software revenue in some markets and 75 per cent in others, said Gartner research director Sharon Mertz.

‘SaaS adoption is highest in applications that support simplified, common business processes or large, distributed virtual workforce teams,’ said Mertz.

‘Ease of use, rapid deployment, limited up-front investment and a reduction in management responsibility all make SaaS a desirable alternative to on-premises software.’

Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers.

The model is gaining popularity in areas such as compliance, risk management, office administration, sales and service automation and procurement optimisation.