Dare, a coworker has posted an article about Software as a Service (SaaS) and the paradox it creates for software vendors. His thoughts are on target when he compares the Innovator's Dilema theory that and cheaper and seemingly worse technology overtakes a higher profit and apparently better technology over time.
Even though I agree with Dare, I sometimes remember the multiple rises and falls of server/desktop environments and the prediction of how free software models will topple the old shrinked wrap ones. With Linux turning 17 years or OpenOffice at age 8, I still wonder how come they haven't fulfilled their rein the world destines. That is because things have to be put in perspective and analyzed case by case. (before you flame me, I know that Linux and OO is pervasive but you can't argue that the prediction of Linux ruling the desktop has not materialized and Windows still dominates even the server)
The main reason I believe that shrinked wrapped software still has plenty of life against SaaS (or open source) is because it brings something that neither free nor cloud can give easily: accountability and quality. Both things go hand in hand and cost a lot of money, things that SaaS has little of (low margins) and OS has none.
Accountability is probably the biggest one. Imagine a manager explaining that the company went down last weekend because your cloud provider was not working. Not easy to point fingers here: most will points to the manager. And this is not the same as electricity. Just because you can outsource marketing, back end processing, etc, doesn't mean you do it. You still keep some things close while you outsource others. Same with computing. You may outsource backup processing, peak load, and similar, but not the main processing.
Then comes quality. Quality is not only in service but also in products. To be fair, Salesforce, Linux desktop (KDE==windows or Mac) OpenOffice (==MS Office) and other alternatives take most of use-and-feel from existing software that were paid by larger profits.
Finally, comes the whole processing power in our hands thing. If we offload everything to the cloud, why do we need all that processing power for? I claim that software needs a bigger transformation, like smart AI, context awareness and Data Mining and use the cloud like a huge database. There is where I feel software + services will go.
I drifted off topic, like always, but anyways...