The emergence of the Software-as-a-Service (SaaS) business model has attracted great attentions from both researchers and practitioners. SaaS vendors deliver ondemand information processing services to users, and thus offer computing utility rather than the standalone software itself. In this work, I propose an analytical model to study the competition between the SaaS and the traditional COTS (Commercial off-the-shelf) solutions for software applications. I show that when software applications become open, modulated, and standardized, the SaaS business model will take a significant market share. In addition, under certain market conditions, offering users an easy exit option through the software contract will help to increase the SaaS vendors? competitive ability.