The SAAS model is very attractive for a number of reasons. A software-as-a-service subscription model puts the onus on vendors to deliver the goods every month, and the underlying economics of multitenancy mean that vendors can continue improving and adding functionality at relatively low cost while keeping prices (relatively) low.

The SAAS model also frees customers from having to maintain IT infrastructure, something which is often not a core competency.

According to Wikipedia:

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Software as a service … is a model of software deployment where an application is hosted as a service provided to customers across the Internet. By eliminating the need to install and run the application on the customer's own computer, SaaS alleviates the customer's burden of software maintenance, ongoing operation, and support. Using SaaS also can reduce the up-front expense of software purchases, through less costly, on-demand pricing. From the software vendor's standpoint, SaaS has the attraction of providing stronger protection of its intellectual property and establishing an ongoing revenue stream. The SaaS software vendor may host the application on its own web server, or this function may be handled by a third-party application service provider (ASP). This way, end users may reduce their investment on server hardware too.

Phil Wainewright explains why SAAS is taking over the software landscape and why enterprises will have to confront implementation and integration headaches.

The megatrend that powers SaaS is the same one driving Web 2.0, SOA and every other expression of today's increasingly Web-connected world. Fundamentally, the infrastructure of the Web allows us to cut out much of the location-dependent friction that gets in the way of communicating, collaborating and trading. Software used to be delivered in boxes and had to be installed in the same building as the people that used it. The Web removes those constraints, enabling SaaS—and SaaS in turn becomes the foundation for innovative new ways of interacting and doing business.

So it's no surprise that SAAS applications are gaining more and more ground within the enterprise.