Many people speculate that Google will take over the Earth and absorb the Internet. Whether for good or worse is of some debate. We’re still seeing this market in its infancy and will be of some debate as to whether its a viable alternative to traditional desktop software.
It’s proven that SaaS offerings are gaining traction with users (the number of subscribers to Google Apps alone, much less Basecamp et al, says enough). There are obvious compelling benefits for users to make the switch from the established desktop-based industry for such applications as word-processors and spreadsheets. However, nothing is perfect and SaaS certainly has its cons — its reliant on an Internet connection, is prone to the security policies of the hosting company, and such apps are slower to respond to user interaction.
It will be interesting to watch the competition between SaaS and traditional desktop offerings. However, I doubt we’ll see either one “win” over the other. There are use-case scenarios that make each a good choice depending on the criteria of the user. What will remain to be seen, and what may be a major factor for both camps, is profitability.