The meteoric rise of Software as a Service, or on-demand hosted software, has prompted a paradigm shift that poses challenges not just to a firm's traditional IT infrastructure but also to vendors who must now counter the trend with low-cost, high-performance solutions to retain their user bases.

"In the next few years most accounting software will migrate into this space," predicted Michael Bodnar of Quantum Information Technologies. "Customers are literally one click away from leaving [their current software package], so it's up to the vendors to improve their functions and performance."

Bodnar, who led a session at the AICPA Information Technology Conference here on the market dynamics of SaaS, pointed to the rapid proliferation of SaaS CRM and business software providers such as Salesforce.com, which now has a base of 2 million users, as well as the offerings of Google Apps.

"It's a new model for knowledge workers," said Bodnar. "With SaaS, your staffing and IT needs will go down and your IT spending will drop. In a traditional setup, you have to buy enough servers to handle peak periods. But a recent survey showed that the average server use in most businesses is about 15 percent. So you're paying for storage you don't use."

That, said Bodnar, has given the impetus for the influx of pay-as-you-go server farms, such as the N1 grid from Sun and EC2 Rent from Amazon, which can charge anywhere from 10 cents to $1 an hour for server space, or "storage clouds," a model of networked data storage in which data is stored on multiple virtual servers and hosted by a third party such as Amazon's S3 or AT&T.

"In the next five years, this will be the future of computing," Bodnar added.