More than a quarter of business applications bought and sold in 2011 will be delivered as software as a service, according to Gartner projections.

A report released Sept. 26 by the research firm said that adoption is well on its way, with SAAS accounting for roughly 5 percent of business software revenue in 2005, and more in some markets such as CRM—8 percent in 2005 and an expected 12 percent this year.

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The report, called SAAS Delivery Challenges On-Premise Software, also found that ERP (enterprise resource planning) and supply chain management applications fared less well, driving a mere 4 percent of revenue through SAAS models.

Adoption is accelerating as SAAS providers enhance functionality and the ability to customize and configure applications, said Robert DeSisto, a vice president of research and CRM analyst at Gartner.

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In the small and midsize business segment, vendors are beginning to provide capabilities to support end-to-end processes, the report found.

"However, no provider offers the functionality capability or process management capabilities on par with on-premise software to support end-to-end cross departmental business flows," DeSisto said.

To date, most SAAS deployments have focused on departmental initiatives like salesforce automation and line of business executives, such as sales directors, have held the purchasing power, DeSisto said.

But purchasing decisions and management should shift to IT organizations as the model grows mainstream, and the IT staffs recognize SAAS is here to stay and is "not a threat to existing modus operandi," he said.