With Office 365, Microsoft Challenges Google

Microsoft made its biggest move into the mobile, Internet-accessible world of "cloud" computing on Tuesday, taking the wraps off a revamped online version of its hugely profitable Office software suite.

The world's largest software company is heaving its two-decade old set of applications -- including Outlook email, Excel spreadsheets and SharePoint collaboration tools -- into an online format so that clients can use them on a variety of devices from wherever they can get an Internet connection.

The overhauled

Chief Executive Steve Ballmer presented the overhauled and updated set of offerings -- collectively called Office 365 -- at an event in New York City on Tuesday morning, stressing that online versions and built-in conferencing tools can save users money, especially small and medium-sized businesses.

It's a new challenge for Microsoft, which built itself up on expensive versions of software installed on individual computers. That business model turned the Office unit into Microsoft's most profitable, earning more than $3 billion alone last quarter.

The cost of handling data

Microsoft's plan is to make up for smaller profit margins from web-based applications -- due to the cost of handling data and keeping up servers -- by grabbing a larger slice of companies' overall innovation spending.

"The key message is this is a great possibility for organizations to get out of the business of trying to provide commodity but mission-critical services," said Silver at Gartner.

Google, which has had the most success in the small and medium-sized business range, says there are now 40 million users of online Google Apps suite. Microsoft does not publish equivalent numbers, nevertheless research firm comScore has estimated 750 million people worldwide use Office in some form.

The upper hand in the cloud

But Internet-centric Google -- whose success is based on its dominance in Web search -- is confident it has the upper hand in the cloud.

"Compared to what they have in the market today, they have nowhere to go however up," said Dave Girouard, head of Google's worldwide enterprise business, in an interview last week. "We feel we're years ahead of them in terms of building a viable cloud solution that just works.

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