Eric Lundquist notes a possible bump in the road on the way to "Software as a Service" nirvana: The difference in cost for vendors between traditional product sales and those of server farms. He says this about the traditional license route:

Selling software was once such an easy job. Since most of your costs were associated with creating your first copy of the software, you knew that if you had even a moderately successful product, you could make a lot of money, as every subsequent copy would cost only pennies but would be sold for dollars. Companies that got the formula correct -- Microsoft comes immediately to mind -- enjoyed revenues and profit margins that were the envy of the entire business world.

That over-simplifies a bit - in particular, you do have the ongoing development and maintenance tasks (it's not as if Word 1.0 is still shipping, unchanged). However, you still have this cost with SAAS - you can update online apps more easily, but you still need to staff on hand to do that work. So in this sense, the two are the same. There is an additional cost, however:

The second consequence is the capital investment hangover. Financial analysts have no patience and will not look favorably on big capital investments that do not drive immediate service revenues. Technology executives will have to learn what steel mill executives discovered long ago: Capital investment is not a one-time event. That server farm you built last year will soon require another big round of investment to stay current and efficient.

The cost for a large server farm dwarf the costs of the machines you buy for your staff - which is why I think this cost isn't really going to be borne directly by most companies looking to build out services to sell. Rather, they'll be going to Google, or Amazon, or Joyent, and paying a utility fee to have them host their services. What this change is going to do is push the move to a utility model even harder.

Update: Nick Carr has another post on this, and links to Ralph Koster, who has some ideas of his own.

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