Most companies will continue to use third party services to handle their e-sourcing needs for the next few years, according to IT industry analyst group Giga. As a result, by 2006, the hosted e-sourcing market will be worth about $690 million and will

overshadow the $160 million spent on e-sourcing software.

But while the hosted market will plateau after 2006, the e-sourcing software segment will continue to grow.

Currently, all but the largest organisations prefer to access e-sourcing facilities on a hosted basis, since they have neither sufficient demand for e-sourcing applications nor the necessary in-house skills to maintain specialist software themselves. But broader spend management suites, lower prices, maturing technology and more mid-tier offerings will gradually encourage more businesses to adopt e-sourcing software.

Giga expects some organisations to shift to a self-service hosted model, allowing staff to gain more experience without incurring the costs of buying and installing e-sourcing software. As skills increase, more companies will licence e-sourcing software.

As a steady stream of new suppliers enters the market, prices will fall and demand will grow among companies with less than $1 billion in revenue, says Giga.