It's proving time for vendors that market hosted applications. They've made their case that the software-as-a-service model can be a fit in enterprise settings. Now SaaS vendors have to prove service delivery and performance are up to snuff.

Hosted applications first won the favor of small and midsize businesses, which were attracted to the model because it lets businesses deploy new applications quickly, doesn’t require a big investment in onsite hardware, and promises flexible usage policies and predictable ongoing pricing.

But it’s not just SMBs that are interested in SaaS. More large enterprises are turning to hosted models for applications such as CRM, human resources, content management, e-learning, supply chain management and more.

Adoption of third-party application hosting is the fastest growing area in managed services, according to Jeff Jernigan, an analyst a market research firm In-Stat. “The on-demand hosted application model has seen acceptance in the small-to-medium business market, and now demand is rising among enterprise-sized firms,” Jernigan said recently. In-Stat is forecasting a 7% compound annual growth rate, overall, for managed services through 2012, driven largely by hosted services.

Likewise research firm Saugatuck in a recent research note indicates that “SaaS has crossed the chasm and is entering the business mainstream.” The firm says the current wave of adoption will challenge SaaS vendors to ensure their offerings are “enterprise-ready” and at the same time “will challenge business users and their IT counterparts to manage the on-boarding and ongoing value of these on-demand solutions proactively.”

Indeed, to keep growth going, SaaS providers have to keep their enterprise customers happy. While application functions and usability are key selling points, vendors can’t underestimate the importance of fast, secure application access. That’s a challenge made more difficult by the increasingly global network of users who tap into hosted applications every day.

To keep their operations running smoothly, more and more SaaS players are investing in tools for accelerating Web application delivery. If they can’t deliver reliable and fast application response times, SaaS providers aren’t going to survive.