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Today, Microsoft opened the technical preview for Office 2010 touting, perhaps most significantly, online access and collaboration. Reports indicate that Microsoft plans to offer free access to basic versions of the productivity software, and features such as storage and backup for a fee. The company also plans to play to its strengths with its business clients, giving them the option to store data in Microsoft’s cloud or to keep it in their own data centers.

This is, of course, just the latest salvo in the ongoing tussle between Microsoft and Google. But at the core of the conflict is the question of what customers are ultimately willing to pay for. Google loves to give products away for free, betting that the more people rely on the Internet, the more opportunities it’ll have to serve the ads that have already earned its billions. Microsoft, on the other hand, still hopes that customers will pay for software itself, although it is being forced to make adjustments to its basic business model by, for example, offering basic access for free.

Given Google’s dominance of the Web it’s easy to see Microsoft as the underdog. But if Microsoft can offer a convincing online version of its productivity software it’ll discourage many people from trying the alternatives out there, including Google Docs.

It’ll also mean that Microsoft can then focus on charging for specialized features, such as security, and service-level guarantees, which enterprises have proven they’re willing to buy. The option of paying for storage and backup services also works, since, even in the cloud-computing world, people are already used to paying for their hardware usage.

Microsoft may well be tempted to make the online version of Office work best for Internet Explorer. But Google has to take a different approach–its applications need to work well in Internet Explorer, Safari, Chrome, and Firefox (I haven’t tested Docs on Opera). And you can bet that Google plans for its applications to be as widely accessible on mobile devices as possible.

Google has helped undermine the idea that the average user should pay for productivity services. Though it doesn’t offer as many features as Microsoft, Google’s products are deeply integrated and designed to be ubiquitously accessible.

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Tagged: Business, Google, Microsoft, Google Apps, Office 2010

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