Nicholas Carr makes a very valid point about software-as-web-service:
There’s a real rush right now to give software away and make money from advertising. The strategy is built on aggressive projections for on-line ad revenues as far as the eye can see. What nobody’s talking about is the fact that advertising is a very cyclical business. If you’re publishing a newspaper or magazine, you have considerable variable costs (paper, editorial content) that you can trim when there’s weakness in the ad market. With software-as-a-service, you don’t have that flexibility in the cost structure of your business. (Your customers aren’t going to use your software less because there’s an ad recession going on.) At some point, and it will probably be sooner than the current rosy forecasts suggest, the on-line ad market will take a dip. Then things will get very interesting very fast.
Interestingly, there is already one (slightly forgotten) Office Live service available: Outlook Live, which delivers a subscription to Outlook coupled with a back-end of Hotmail, hosted contacts and calendar. I wonder if that’s the model that Microsoft will move towards: Free (ad-supported) AJAX-based web software, and subscription-based services which then tie into Office apps (which you receive as part of the subscription). I’d pay £100 a year for all my Office documents to be stored (cached) online and for the latest version of Office.