Google pushed further into the communication and collaboration applications market with a major upgrade Thursday of Google Apps, a hosted suite for organizations of all sizes that analysts say could soon become a real competitor to Microsoft Office.

Google introduced a Google Apps version that, for a fee, offers guaranteed uptime, IT management tools, technical support, increased e-mail storage, and integration with the Docs & Spreadsheets word processing and spreadsheet applications, as well as BlackBerry support for Gmail.

[Related story: "Avaya to add VoIP to Google Apps" | Podcast: Google's Rajen Sheth discusses Apps | Talkback: "Can Web-based applications outwit, outplay, outlast the desktop?"]

With a cost $50 per user per year, Google Apps Premier Edition becomes the third and most sophisticated version of the suite, which was launched in August with the free Standard Edition and Education Edition versions. Like the original editions, Premier will have services like Gmail Web mail, Calendar shared scheduling, and Talk instant messaging.

The suite was until today called Google Apps for Your Domain, because organizations offer these Google hosted services using their own Internet domain and branding. The Standard edition is used by over 100,000 small businesses, and the Education edition by hundreds of universities.

SF Bay Pediatrics, which has two medical offices in the San Francisco area, implemented the Premier edition in January for most of its 25 employees, which until then had used individual e-mail accounts from providers like AOL. "We had no control over e-mail, and supporting it was a nightmare," said Andrew Johnson, the company's chief information officer. With Gmail, the performance and management e-mail problems disappeared, he said.

While SF Bay Pediatrics employees use Microsoft's Office suite, they also use Docs & Spreadsheets to store their files on a central server and collaborate on them, Johnson said. "I don't see us going fully software-as-a-service yet, but maybe in the future," he said.

Indeed, Google Apps represents a new, hosted approach for productivity suites, a market ruled by Office, which is mostly desktop software. Despite security and privacy concerns over storing applications and data on a third-party datacenter, organizations are increasingly adopting hosted models, because the vendor stores applications on its own datacenter and thus frees IT departments from spending time and money on hardware and software maintenance.

Forrester Research isn't telling enterprises to drop Office, but it is recommending that CIOs give Google Apps a serious look, in large measure because Office's price is high, said analyst Erica Driver. Today, Google Apps is a cheaper alternative to the core Office applications, but eventually it could be a replacement option, as Google grows its capabilities and CIOs get more comfortable with software-as-a-service, she said. "Microsoft has a chance to respond, but this changes the game," Driver said.

Microsoft says Office has steadily gained hosted service components for years, and it believes this combination with the core PC software is the right approach. Beyond native Office services, Office Live, with about 250,000 subscribers, offers a set of hosted services for small businesses, like Web site creation and hosting, while Office Online, with 70 million monthly unique users, offers Office online resources. "We're very committed to both [hosted] services and [PC] software," said Kirk Gregersen, director with Microsoft's Office team. On the issue of Office's price, Gregersen pointed out that Office customers have had less expensive alternatives, even free ones, for years, but that when deciding to buy Office, they have traditionally taken other factors into account beyond cost.