Nine out of ten companies plan to grow their use of software-as-a-service (SaaS) in the next year, according to a survey by Gartner.

More than one third of respondents (37%) plan to replace on-premises software with SaaS to drive down total cost of ownership (TCO), Gartner found.

Those surveyed cited cost-effectiveness and ease of deployment as primary reasons for adoption. Other major drivers included replacing on-premises solutions that had not met performance expectation, or changes in sourcing strategy.

The survey involved eight major countries worldwide and 258 IT executives that make purchasing decisions of enterprise software. Most respondents were either currently using SaaS, or planned to use it within the next 12 months.

European firms trailed behind North American companies when it came to plans to increase investments in SaaS or subscription model products. But 49 percent of European respondents said that they expect new investments to increase slightly and 15 percent expect significant increases in investments. This compares to 62 percent and 15 percent respectively in North America. The US has been an early adopter of SaaS, with more than 20 percent of respondents indicating use for five years or longer and 60 percent having adopted it in the last three years.

Sharon Mertz, research director at Gartner, said: "Use of SaaS has been evolving during the past decade and the SaaS model has become increasingly popular over the past three or four years."

The survey indicated that more than 40 percent of organizations have used SaaS for more than three years.

"Users are demanding higher levels of functionality, sometimes prompting organisations to renegotiate their contracts early to opt for more feature-rich solutions, or to add more users as the organizational footprint expands," she said.

Mertz added that the current global recession, which will force firms to cut discretionary spending in 2009 and 2010, would see budgets redirected from enhancing on-premises solutions towards SaaS solutions.

Despite the increase use of SaaS, most respondents to Gartner's survey said no governance policies had been developed. Only 38 percent of total respondents that are currently using SaaS have a process or policy that guides the evaluation, procurement and deployment of SaaS. The majority of these organisations are based in Europe and North America. Another 26 percent had no plans at all to address this issue.

The full report, titled "User Survey Analysis: Software as a Service, Enterprise Application Markets, Worldwide, 2008", is available on Gartner's website.