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Microsoft's New Office Faces the Web

Offering free Office software from the cloud is a major strategy shift.

Office 2010, the latest version of Microsoft’s hugely profitable Microsoft Office productivity suite, will begin shipping to business customers early next month. Its arrival will be an important test for the software colossus as it adapts to an increasingly Web-focused software landscape.

That’s because at the same time, Microsoft will also offer free, ad-supported Web versions of Office applications. The Web versions are Microsoft’s attempt to fend off a growing number of free Web-based office apps, including Google Docs and Zoho. (The regular versions of Office 2010 will cost between $99 and $499, and those who buy these versions will also have access to more complete Web versions of the apps).

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The threat to Microsoft from these Web-based apps has intensified as a handful of organizations, including the Los Angeles city government and Genetech, have adopted enterprise versions of Google Docs alongside Microsoft’s software. In a report released by IDC in September 2009, some 20 percent of business users said Google Docs is in widespread use at their companies–up from less than 6 percent 18 months earlier. IDC expects this figure reach 27 percent this year, which could spell trouble for Microsoft, which gets as much as 60 percent of its profits from Office, if it means users are turning away from its software.

Office 2010 brings with it Office Web Apps, which includes Web versions of Word, Excel, PowerPoint, and OneNote. Microsoft is positioning the software as a complement to the regular version of Office and focusing on compatibility with its existing software as a key selling point. Office Web Apps will let users create and save documents that look exactly the same when opened with the regular versions of those applications.

Microsoft’s Kurt DelBene, senior vice president of Office Business Productivity, says the company’s number one focus in developing Office Web Apps was making sure that files look and behave the same both offline and online in Internet Explorer, Firefox, and Safari browsers (DelBene says Microsoft has not seen enough demand for Google’s Chrome browser to support it), as well as on Web-enabled mobile phones.

DelBene adds that most business users don’t create documents on the Web, so when they move documents from the desktop to a cloud application, this typically results in formatting errors. This is an issue that Google is also keen to address. In March, the company acquired DocVerse, a startup whose software lets people collaboratively work on Word, Excel, and PowerPoint documents in the cloud. DocVerse’s founders posted on their blog that “our first step will be to combine DocVerse with Google Apps to create a bridge between Microsoft Office and Google Apps.”

Office Web Apps will not include all of Office’s features, like the ability to create macros. Further, Office Web Apps will remain in beta after Office 2010 launches.

Microsoft clearly faces pressure from free Web apps that offer similar functions to many of its Office programs, although so far, increased use of services like Google Docs hasn’t been matched by a drop in the use of Microsoft Office, says IDC analyst Melissa Webster. In its September 2009 study, IDC found that Office is widely used in 97 percent of companies surveyed, “and the needle on that has not moved in three years,” according to Webster, who says most companies use Google Docs to complement Office. “If you’re in a large organization, you’re running this huge number of enterprise applications,” she says. “You’re stuck with selectively implementing things in the cloud.”

Organizational psychology may also help Microsoft. “What works for Microsoft is human behavior; we really don’t like change,” says Rob Enderle, principal analyst at the Enderle Group.

Office Web Apps will also offer Microsoft a chance to assess the logistics of offering other software over the Web. DelBene was says cloud computing is creating a “total transformation” in Microsoft’s business model.

One Microsoft rival agrees that the company is wise to take a measured approach. “It would be a mistake for Microsoft to put it all in the cloud right now,” said Raju Vegesna, who works for Zoho as an “evangelist.” Zoho has only one customer with more than 10,000 users, and that customer uses a special, client-based version of Zoho’s applications. Still, Vegesna says, Office Web Apps provides validation for cloud applications, and he says that Zoho expects to see a substantial jump in users this year.

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