Sure, one day you log in and they updated an application tossing out backward compatibility and you cannot open any of the associated documents without having run some other program to bring the old data to new standards. While they are at it, the old files get stripped of some of its formatting features and you are left with a mess.
There are many problems with that model. The lack of an Internet connection is most serious. Go into a meeting to do a presentation, only to find no Internet service. Uh,..ok,..hand puppet shadows anyone?
All it takes is one time and you just lost some business to your competition.
This is definitely not something for business use and that is what will end up hurting it the most. At home, people will use what they are used to using at work, for the most part.