User satisfaction with software-as-a-service is starting to slip, but customer interest in this method of outsourcing IT functions is continuing to grow, according to survey results released this month by the Cutter Consortium, an IT research and analysis firm.

“We believe our latest survey clearly shows that SaaS will become a dominant force in 2007,” writes report author Jeffrey Kaplan, who runs the consulting firm THINKstrategies and is a Cutter Consortium senior consultant.

Kaplan performed a survey via the Web, and got responses from 88 IT professionals within end-user organizations. Thirty-one percent were already using software-as-a-service, the same as in the previous year’s survey, but another 43% are now considering it, up from 34% the previous year.

Kaplan found satisfaction rates of 90% among users last year, and 80% this year. “I was a little surprised we saw the level of slippage we’ve seen,” Kaplan says in a phone interview.

The diminished satisfaction represents a “warning sign for both users and vendors,” he says. Users need to make sure they don’t have unrealistic expectations, and must evaluate the capability of vendors before selecting a service, he says.

But it is natural to have some drop in satisfaction, Kaplan notes.

“Whenever a market grows, customers arrive with different sets of expectations. Sometimes, those expectations may not be realistic,” he says. “The other part is a larger number of providers emerge and their ability to deliver a consistent quality solution will also vary.”

The primary motivations for users who adopt software-as-a-service are the ability to accelerate deployment, elimination of infrastructure costs, and a desire to have internal IT and application staff focus on more strategic projects, Kaplan writes.

Software-as-a-service is generally reliable and functional, but some customers are disappointed in the cost, he says.

“Some customers had an expectation in terms of cost savings that may not have been realized,” he says. “In fact, some SaaS applications do require a certain level of preparation and integration, and even data migration that could result in some additional costs from a consulting third party.”

A separate report issued by Forrester Research in November found that the largest firms are the most interested in using software as a service. Enterprises use software-as-a-service most often for human resources, enterprise resource planning, customer relationship management, and security, Forrester reported.