Spending on software as a service (SaaS), the model in which applications are rented rather than purchased and delivered as a service over the Internet or a private network, rose 39% in 2004 to hit $4.2 billion worldwide, according to IDC.
The industry research group predicts that this torrid pace will slacken slightly over the next four years, rising at a compound average rate of 21% to reach $10.7 billion in 2009.
IDC observes that this unexpectedly high level of growth is being driven largely by demand from small and medium-sized businesses. In many cases they lack the capital to invest in building their own applications infrastructure and related skills.
"Software as a service has become a driving force within the software industry," observes IDC analyst Erun Traudt.
Although the term ‘software as a service' is relatively new, the idea is not. The IDC figures include revenues from a large group of companies that previously called themselves application service providers, many of which were negatively impacted by the over-hyping of the sector during the dot-com boom.