Demand for hosting services is set to soar over the next five years according to a recent customer survey by hosting provider, Rackspace Hosting.

According to the study, nearly 70% of IT managers expect over the next five years, that the number of IT functions they outsource to hosting, SaaS or cloud service providers will increase.

With the current economic turmoil, many feel that the pressure on IT budgets is set to remain constant, or even increase. Outsourcing has often been touted as a cost saving option (mostly, in truth, by the IT service providers themselves), so it comes as no surprise then that the survey identifies a number of IT managers assigning a significant part of their budgets to hosted services.

Indeed, 47% said they spend between 0% and 20% of their IT budget on hosted services, while 30% of respondents said that they spend 30% - 50% of their IT budget on hosted services.

Meanwhile, nearly 50% said that they expect the percentage of IT budgets spent on hosted services to increase over the next five years. And acceptance of outsourcing applications to be hosted elsewhere seems to be rising, with 40% not hesitant to host any application externally.

Yet despite this, it seems that there are certain functions customers are less likely to outsource the hosting of, namely their accounting/finance, payroll, billing, file and print servers, and HR functions. That said, customers seem more than happy to offload e-mail, Web sites, and analytics (business intelligence) functions among others.

"Two thirds of the survey respondents use a services provider to host one or more of their SaaS applications today and the data indicates that demand is likely to increase," said John Engates, Rackspace's chief technology officer. He said that in order to meet demand, Rackspace will continue to build out its portfolio of hosted IT services.

But there isn't just financial reasons why customers opt for the hosting route it seems.

More than 40% said that outsourcing their IT functions to a hosting provider saved them between 30% - 50% of their time. As a result, 44% of them believe that they can spend at least 25% more time on new projects because of the time they saved from outsourcing their hosting needs.

Rackspace famously claimed last year that virtualization was not yet ready for the big time, and the technology was unlikely to save money. The claims followed a survey back then, in which 87% of Rackspace customers said they would not share a server with other hosting customers. And more than a quarter felt that virtualization was not yet ready for mission-critical applications.