[Quote= Copied from Wall Street journal]
Just as Microsoft Corp. is about to roll out the latest version of its cash-cow Office applications, Google Inc. is beefing up efforts that could win away some of the customers Microsoft is targeting.
Google's latest move, expected to be announced today, is a plan to bundle its existing word-processing and spreadsheet offerings -- online applications that people can use through their Web browsers -- under the name Google Docs & Spreadsheets and more tightly weave them together. The services, which are available free, offer more-limited functions than Microsoft's word processor and spreadsheet programs, which people use the old-fashioned way on their personal computers.
Google Chief Executive Eric Schmidt told reporters last week that Microsoft's hold on customers who aren't "professional users" of its core Office product "may be vulnerable." The Web search giant is targeting average consumer users and organizations such as universities as it continues to expand email, calendar, spreadsheet and word-processing services that overlap with Microsoft offerings.
Google's push comes as Microsoft puts the finishing touches on Office 2007, the latest version of its ubiquitous set of business programs, due by the end of the year. The programs, taken together, are Microsoft's largest generator of revenue and profit after its Windows operating system. They are also deeply entrenched in the world's large and small businesses around the world.
Free equivalents of Office have existed for years and failed to crack Microsoft's market share, But over the past two years, a growing number of Internet companies, including Google, have started to make concerted efforts to pick away at the business, which accounted for $11.8 billion in revenue for Microsoft in the year ended June 30.
Working in favor of these Internet interlopers is a continuing shift by businesses and consumers to software used over the Internet. For decades most computing tasks were handled with software that was installed on computers. Microsoft defined that era with its Windows operating system and its Office suite of applications.
In recent years, though, as high-speed broadband Internet connections have spread to homes and offices, an increasing number of computer users have begun experimenting with software applications hosted over the Web. With just a Web browser, they can use software over the Internet that's free or available by subscription.
Kyle McNabb, an analyst at Forrester Research Inc., says that Google's moves are less about grabbing market share today than about changing behavior and getting consumers accustomed to free online software that they now buy from Microsoft. "Google is helping set the expectations that you don't have to go buy these things," he says. "This is going to have an impact over five to 10 years."
Microsoft Vice President Antoine Leblond says that Microsoft doesn't have plans to roll out an online version of Office. Instead, he says, the company is building online services designed to work with Office, a strategy that would tap the benefits of online programs without cannibalizing Office. "The future of software is going to be the combination of client applications [like Office] and [online] services," Mr. Leblond says. "It's not going to be one or the other -- the black or white approach."
Mr. Schmidt said last week that Google was "not in the business of building Office," which he said was well suited for "professional users." But the comments by Mr. Schmidt, who has long played down any competition with Microsoft, make much clearer Google's likely core target market: users at home, in educational settings, and at small- and medium-size businesses. It could also include professional users who rely on Google for personal applications. Mr. Schmidt said Google's calendar application is better than Microsoft's for family members sharing their schedules, primarily because it is free and allows such sharing to take place easily online.
Google has rolled out a range of free online services. Some of them carry advertisements, and it hopes others will entice people to use its ad-supported services more. In contrast, Microsoft licenses Office to businesses and sells it to consumers for about $400.
Microsoft plays down the potential threat to Office from Google, arguing that online software can't have the same full features that computer users demand. It can also be slow, and many businesses are loath to entrust core business functions and data to outside companies.
Microsoft's Mr. Leblond says that Google will also find it increasingly difficult to add new features to its programs, in part because the programs rely on browser software for many of their functions. So for instance, printing is much more limited than printing from an Office program, he says. "The technology they are using has some inherent limits," he says. "They are going to hit up against these limits."
But Google says it isn't trying to match all the features of traditional productivity software. "We believe that 90% of users don't necessarily need 90% of the functions that are in there," says Jonathan Rochelle, a product manager for Google Docs & Spreadsheets.
With the Google products, a user can save any documents on Google's servers, accessing them from anywhere that can connect to the Internet. Other key differences with Microsoft: Besides being free, Google services make it easier for users to share files and work on them simultaneously, Google executives say. One important similarity: The Google services can generally save and open files in Microsoft-compatible formats.
"We're building a different way of dealing with complex, powerful information that is online all the time, on every device, and fully shared," explained Mr. Schmidt.
Google is now trying to drive a shift toward this sort of consumer usage. The Mountain View, Calif., company earlier this year bought Writely, a Web-based word-processing service, and rolled out its own spreadsheet product. In August it began offering Google Apps for Your Domain, a package that allows organizations to tap email, calendar, instant-messaging and Web-page creation services that run on Google's computers. Google executives had said that word-processing and spreadsheets were "good candidates" to be added to that offering, which is geared toward organizations and small businesses.
Google's Gmail email service had 9.7 million U.S. visitors in September, and its Calendar service had 896,000, according to comScore Networks Inc. The research firm didn't have usage statistics for Google's word-processing or spreadsheet services.
Rick Sherlund, an analyst at Goldman Sachs, thinks that Microsoft will need to respond more directly to Google's moves. He predicts -- despite Microsoft's denials -- that the company will offer a lower-end version of Office over the next year that's aimed at consumers and small businesses.
"I think that they are leaving the door wide open for Google to deliver a broader solution on their online platform," Mr. Sherlund says. Microsoft needs "to be serious about trying to shut that door on Google."