My response to all this:
1. Our primary requirement is to meet the needs of the customer. Some customers have legal requirements which preclude SaaS in the sense of SaaS in the cloud, but still wish to have the advantages of SaaS. Think doctors, schools, etc. -- it is actually illegal for them to host patient / student data outside of their own facilities on shared servers. But if we can give them the benefits of SaaS inside their facility using the same software that we have deployed into the cloud -- i.e., *not* a separate version of the software -- then we've fulfilled their needs without any (zero) additional development overhead. And BTW, just to counter one of Marko's points, anybody who structures their sales commissions structure to reward selling private rather than SaaS in the cloud is an idiot and deserves to fail, cloud is generally *much* less support on our part, it just doesn't meet the needs of certain customers.
2. I have not encountered any customers who want rapid updates of critical applications, ever. My boss once ordered me to deploy a new update to a school scheduling program in the middle of a school year. I pointed out that a) school secretaries and counsellors were currently doing mid-term schedule changes, b) school secretaries and counsellors had not been trained on the changes, which were significant (I had re-written the entire scheduling system from scratch going back to first principles, because the old system was incapable of handling some of the new scheduling paradigms that had come out, such as multi-shift scheduling and quarter-system scheduling), and thus c) it would be a fiasco. He said the old system was broken, so deploy the new one anyhow. I did. And got to say "I told you so" to my boss when it turned into the fiasco I'd predicted. My point: Users are fond of *saying* they want the latest, greatest features, but what they actually want is to get their job done. Paying attention to what users say, as vs. what they actually want, can be a huge mistake costing you a lot of money in additional support costs and losing a lot of customer goodwill. Not only were our support lines clogged solid for a week, my boss had to eat a lot of crow at the next user group meeting to get some of that lost goodwill back.
3. I am on Twitter. Yes, customers will Tweet stuff. 140 characters doesn't exactly get you in-depth commentary though. If you let Twitter guide your product development, what you get is a product designed by tweets, which is indistinguishable from a product designed by twits. I have only met one customer in my entire life who actually knew what he wanted (a school discipline coordinator who said, "I want a computerized version of these three state-mandated forms, and reports that fulfill the requirements of these four legally-required forms that I must submit at the end of the school year"). The rest have some vague idea, but you must get with them and engage them in a lengthy discussion complete with design proposals that include sample screen displays of what the application might look like. For one clustered storage product I actually spent more time talking to potential customers, writing proposals, and getting feedback than I spent implementing the actual product. Needless to say, that is *not* a process that occurs in 140 characters.
4. Anybody who goes into a business where there is an entrenched incumbent expecting to compete on features is an idiot in the first place. The incumbent has basically infinite resources at his disposal compared to you and is capable of implementing far more features than any newcomer. He will simply steal any features you innovate in order to stay out ahead. In the old days incumbents like IBM weren't capable of innovating rapidly. But this is the Internet era, and the successful giants have become much more nimble. If there's a feature you have that the incumbent doesn't have, expect him to have it soon. The way to win today is to change the game -- to do something so novel, so different in a fundamental way, that the incumbent could not match you without re-writing his entire product from scratch and ditching his entire current customer base. In short, competing based on features is a fool's game in today's era unless you're the incumbent. The way to win is to change the paradigm, not attempt to compete on features within an existing one.
5. Yes, selling "private SaaS" means we basically end up having to support multiple versions. But that is true regardless, unless we want to force customers into a death march to new versions. Some customers are comfortable with that, the majority, however, arrive at a version they like and just want to stick with that, much as the majority of Windows users are still using Windows XP, or the majority of Linux users are using Red Hat Enterprise Linux 5 (basically a three-year-old version of Linux) rather than the latest and greatest Fedora or Ubuntu. They'll accept security fixes, but that's it -- if you attempt to death march them, they'll go to a competitor who won't.
I've been dealing with satisfying customer requirements for around 15 years now, and my actual experience of those 15 years is that customers are ornery folks where what they say and what they actually want are two different things, and your job as an architect and designer is to try to suss out what they actually want, which is often *not* the same as what they say. Young engineers tend to take customers at face value, then not understand why the customer rejects the result as not meeting his needs. I get called conservative sometimes because I call for slowing down release cycles, maintaining backward compatibility wherever feasible, extensive trials with customers prior to product release, etc., but my experience is that this is what customers want -- as vs. what they say they want, which is something else entirely.
For the record - my phone is an iPhone, and the only paper maps in my car are detailed 1:24000 USGS topographical maps not available on current GPS units with reasonable screen sizes. Just sayin' ;).