It is popular in the Software-as-a-Service (SaaS) movement to berate the established independent software vendors (ISVs) as doomed to inevitable extinction. The ISVs face overwhelming challenges as they attempt to convert their on-premise applications and entrenched corporate cultures into on-demand, service-oriented, net-enabled companies.

The established ISVs have become easy targets for Marc Benioff at Salesforce.com, “The End of Software” author Tim Chou, and a wide array of lesser-known industry pundits. In a world in which the difference between right and wrong becomes more indiscernible everyday, software professionals and industry “experts” are still happy to pick sides in an escalating argument over who will win or loss in the rapidly evolving on-demand bazaar.

While I admit to fanning the flames a bit by pointing out in my writings and talks the major challenges facing established ISVs–rearchitecting their software, restructuring their revenue models and rebuilding their corporate cultures–I’m proud to say that I’ve never tried to turn the industry into a battleground of software zealots.

So, after taking plenty of abuse over the past 9-12 months from the SaaS upstarts and their compatriots, this week may have marked the beginning of a comeback for the encumbent ISVs.

Microsoft’s CEO, Steve Ballmer, acknowledged at the company’s annual shareholder meeting, “We believe this shift [toward SaaS] is the most important technological transformation during the next decade.” He went on to say Microsoft’s online services group has become the “fourth core” area within the company, in addition to desktop software, computer server software and entertainment.

Ballmer’s words may have a hollow ring to many cynics who think the company is just tying to buy time as the SaaS market quickly evolves. I’ve even criticized the company in the past for faking a response to the SaaS movement. But, a recent series of events, conversations and initiatives have convinced me that Microsoft is making serious headway in the SaaS market.

My more positive impression of Microsoft’s SaaS initiatives began to take shape after Microsoft’s partner conference in Boston. Attendees told me that it was one of the best events they’d attended in years and they were genuinely turned on by Microsoft’s new offerings.

Then I heard about Microsoft’s initiative to develop and deliver private label versions of its new Live offerings for telecom carriers and major hosting companies.

An overview presentation by Cliff Reeves, a strategist in Microsoft’s ISV partner program, at the SIIA On-Demand Conference painted an even clearer vision of the company’s go-to-market strategy.

The company’s new licensing policies that encourage SaaS start-ups and web hosting companies to leverage Microsoft technologies has cemented my change of heart.

Each of these efforts alone could be discounted for a variety of reasons. But, all of these initiatives, and others, taken together demostrate that Microsoft is not turning inward to determine how to survive the onslaught of the SaaS movement. Instead, Microsoft is unleashing its people to respond from every angle and reassert itself as a pivotal player in the brave, new world of on-demand services. In case there is any doubt, CIO Magazine’s latest cover-story is entitled, “Inside Microsoft’s plan to dominate the Web 2.0 enterprise.”

Adding moral support to Microsoft’s efforts, Oracle announced this week that its on-demand services surpassed 1.7 million users. Ironically, Tim Chou helped to launch Oracle’s on-demand business before becoming an independent consultant and staking his reputation on the failure of old-guard ISVs. Now, Oracle is serving 2200 corporate customers and experiencing 50% revenue growth in its on-demand business which includes hosted Siebel and PeopleSoft solutions.

I recently saw a high school production of Les Miserables. If you don’t know the play, it follows the initial (albeit failed) uprising of the French Revolution. The parallel to today’s SaaS revolution is striking. Anyone who thinks we’ve seen the end of the software titans, will be surprised by the staying power of the entrenched players.