IT leaders in need of updated applications but can't swing the capital investment may wish to consider software-as-a-service. A new report from Gartner forecasts the worldwide enterprise SaaS market will surpass $6.4 billion this year, up 27% from 2007.

Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. You may remember the hype over application service providers at the beginning of the decade, but SaaS is not the same as application hosting or application outsourcing.

“The popularity of the on-demand deployment model has increased significantly within the last four years. Initial concerns over security, response time, and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become pervasive,” says Sharon Mertz, research director at Gartner.

In fact, Gartner forecasts the SaaS market to hit $14.8 billion in 2012. What’s driving deployment are the tough economy, better broadband, and a need to rapidly deploy software to meet a specific business need.

SaaS offerings include office suites; customer relationship management such as RightNow, Salesforce.com, and SugarCRM; content, communication and collaboration, such as WebEx; digital content creation; and supply chain management.

While evaluating SaaS, though, Gartner Principal Research Analyst Chris Pang recommends careful consideration as to where it’s most appropriate and beneficial in your organization. Identify the costs incurred with the solution to establish whether this sourcing option is a better choice.

Amy Schurr is the former managing features editor of Network World.