INPUT expects the market for state and local government-oriented Software as a Service (SaaS) solutions to grow from approximately $170 million in 2008 to $640 million by 2013, earning a compound annual growth rate (CAGR) of 30.2% for the period, according to a recent SaaS report by INPUT, the authority on government business. This growth rate is far ahead of INPUT’s overall market CAGR of 6.4% for the same period. SaaS will see its market share grow from approximately 4% of the $6.5 billion state and local software market in 2008 to approximately 11% of the $8.9 billion market in 2013.

“While this represents aggressive growth, the state and local market will still lag well behind private-sector adoption rates. This is partly due to cultural resistance as well as a lack of tools tailored specifically to the wide variety of government-specific business processes,” said Jason Sajko, senior analyst for general government services at INPUT. “That sort of tailoring will tend to come after larger vendors have begun bumping up against the limits of their private-sector market reach and begin looking for new niches.”

While a precise definition does not yet exist, in general Software as a Service (SaaS) is defined as standard browser-based application services delivered over the Internet to multiple customers. The increased availability of Internet bandwidth has allowed a variety of hosted-software technologies to be battle-tested in the commercial and consumer markets. State and local governments have taken notice and fiscal crises are forcing agencies to at least consider SaaS for their business needs.

A couple SaaS sweet spots are developing in the state and local and education technology market.

Successful vendors are targeting smaller agencies, cities, counties and special districts with small budgets that are tightening daily and often a sophisticated citizen with high expectations of electronic government.

Vertical markets, especially education, are emerging as SaaS niches. Educational institutions do not pose some of the traditional organizational obstacles as state and local governments and therefore have experienced quicker adoption of the SaaS model.

Savvy SaaS vendors are providing secure solutions tailored to governments’ unique needs with a variety of basic hosting and customization options to meet most clients’ comfort levels. A one-size-fits-all or re-wrapped commercial solution will lag as competition grows.

These findings and others were released in an INPUT Industry Insight Report, “SaaS to Carve out a $635 Million Slice of the State & Local Government Software Market.” More details are available at http://www.input.com/corp/library/detail.cfm?itemid=7593&cmp=OTC-mrsaasii1008.