Just Good Enough
One thing that might deter you from writing Web-based applications is the lameness of Web pages as a UI. That is a problem, I admit. There were a few things we would have really liked to add to HTML and HTTP. What matters, though, is that Web pages are just good enough.
There is a parallel here with the first microcomputers. The processors in those machines weren't actually intended to be the CPUs of computers. They were designed to be used in things like traffic lights. But guys like Ed Roberts, who designed the Altair, realized that they were just good enough. You could combine one of these chips with some memory (256 bytes in the first Altair), and front panel switches, and you'd have a working computer. Being able to have your own computer was so exciting that there were plenty of people who wanted to buy them, however limited.
Web pages weren't designed to be a UI for applications, but they're just good enough. And for a significant number of users, software that you can use from any browser will be enough of a win in itself to outweigh any awkwardness in the UI. Maybe you can't write the best-looking spreadsheet using HTML, but you can write a spreadsheet that several people can use simultaneously from different locations without special client software, or that can incorporate live data feeds, or that can page you when certain conditions are triggered. More importantly, you can write new kinds of applications that don't even have names yet. VisiCalc was not merely a microcomputer version of a mainframe application, after all-- it was a new type of application.
Of course, server-based applications don't have to be Web-based. You could have some other kind of client. But I'm pretty sure that's a bad idea. It would be very convenient if you could assume that everyone would install your client-- so convenient that you could easily convince yourself that they all would-- but if they don't, you're hosed. Because Web-based software assumes nothing about the client, it will work anywhere the Web works. That's a big advantage already, and the advantage will grow as new Web devices proliferate. Users will like you because your software just works, and your life will be easier because you won't have to tweak it for every new client. [16]
I feel like I've watched the evolution of the Web as closely as anyone, and I can't predict what's going to happen with clients. Convergence is probably coming, but where? I can't pick a winner. One thing I can predict is conflict between AOL and Microsoft. Whatever Microsoft's .NET turns out to be, it will probably involve connecting the desktop to servers. Unless AOL fights back, they will either be pushed aside or turned into a pipe between Microsoft client and server software. If Microsoft and AOL get into a client war, the only thing sure to work on both will be browsing the Web, meaning Web-based applications will be the only kind that work everywhere.
How will it all play out? I don't know. And you don't have to know if you bet on Web-based applications. No one can break that without breaking browsing. The Web may not be the only way to deliver software, but it's one that works now and will continue to work for a long time. Web-based applications are cheap to develop, and easy for even the smallest startup to deliver. They're a lot of work, and of a particularly stressful kind, but that only makes the odds better for startups.