Back then Google Apps had limited availability, and hardly anyone had heard of hosted applications provider Zoho. IBM had not yet released its free productivity software, Symphony, and while many people liked the idea of OpenOffice.org, compatibility issues with other applications kept it on the margins of most mainstream office environments.
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Things have changed since then, with Google more than any other company posing a real threat to Microsoft's Office stronghold. In a little over two years, Google Apps has made headway in the business market, especially among small businesses that don't need all of the advanced functionality Office offers and that prefer Google's $50 per user, per year price.
Google Apps -- which has much of the functionality that most business users need in Office but adds document-sharing and collaboration features Office doesn't have -- is now used by hundreds of thousands of business users, said Google spokesman Andrew Kovacs.
And small businesses aren't the only ones using Google Apps; the company counts some major enterprises, such as Motorola, Genentech, and Sabic (formerly GE Plastics), as customers, all of which have tens of thousands of employees using the hosted service.
Microsoft is aware of the growing threat, and will counter it in Office 2010, which for the first time will include Web-based versions of its most commonly used productivity applications, Word, Excel, PowerPoint and OneNote.
The company believes that by offering choice to its customers, it can retain Office desktop users who may be thinking of a switch to a Web-based application, or win back some customers that might already be using Google Apps.
In a recent interview, Stephen Elop, the president of the Microsoft Business Division, said while the influx of all of these new Web-based competitors to Office is new, the suite itself is no stranger to competition.
Before Office competed with Google Apps and others, it competed with itself in the form of pirated copies people were getting from each other, he said. In fact, more people use free Office versions than use Google Apps, which should provide some perspective on the company's current dominance in the productivity market.
"We have way, way, way, way more people using free versions of Word, Excel, PowerPoint, Outlook, what have you -- way more than Google has or will in a long time using the Google applications," Elop said. "Of the 500 million copies of Office in use today, half of those have been paid for. The other half have been free. Obviously, I'm tipping a hat to people who might borrow software."
Elop said the inclusion of Office Web Apps will give Office users the ability to collaborate and share applications over the Web, which is one of the reasons some Google Apps business users have said they prefer to use the Web-based applications instead of the desktop suite.
"When you're using Office 2010, the ability to work within Word 2010 and say, 'Hey, am I'm storing that document locally or am I putting it up into a cloud-based environment of SharePoint or am I posting it to the Web?' -- all of those types of things are brought together in a way that makes sense to the user and allows the company to take advantage of some of those products," Elop said.
Google's Kovacs said that Microsoft is missing the point, however, when it talks about Office Web Apps as "lightweight" versions of more robust Office applications.
Rather than try to take the desktop experience of using Office to the Web with Google Apps, Kovacs said Google is trying to "rethink the way people are collaborating," giving them a venue that lets them edit and share documents and communicate with each other as they work on them together..
"We don't view [Google Apps] as lightweight versions -- we view them as more powerful, that allow people to be much more productive," he said.
Early Google Apps users tend to agree with Kovacs; most of them are using the suite alongside a version of Office to complement it, not replace it, and it's the collaboration features they find most attractive.
"We still use Microsoft Word and Excel when creating documents, but if there is a document being produced that needs collaboration or dissemination company-wide, it usually runs through Google Docs," said Andrew Johnson, CIO of SF Bay Pediatrics, a physician's practice with offices in San Francisco and Mill Valley, California.
He said the practice even has a Google Apps spreadsheet that receptionists at both offices use as part of their daily workflow to answer questions or provide scheduling information to patients. It's the ability to instant-message one another within the application that makes it so useful, Johnson said.
Kari Barlow, assistant vice president of the University Technology Office at Arizona State University, said Microsoft Office will always be preferred by some users who need its most advanced features. "There are always going to be high-end [Office] users that need mail merge or spreadsheet pivot tables, but that's not everyone," she said.
Several years ago, ASU replaced a homegrown e-mail system for its students with Google Apps, and some of the faculty have since transitioned from the university's Exchange Server/Outlook client e-mail system to use the Gmail and collaboration features of Google Apps as well, she said.
Barlow also prizes real-time collaboration. "The synchronous editing of a single document, with multiple people at the same time editing the document; the ability to share it with one person, a group of people, a domain, the world -- it's very simple and straightforward," she said.
From these early use cases, Elop is probably right not to be too concerned that Google Apps will knock Office out of its dominant position, as many organizations still depend on the Microsoft suite for heavy lifting. More than 80 percent still use it more than any other productivity suite, according to recent figures from Forrester Research.
But as companies examine more closely the costs of IT and realize that the functionality provided in a Web-based collaboration suite like Google Apps suits many of their users, Office will become less of a must-have application company-wide, said Forrester analyst Sheri McLeish.
As companies sort their users according to the productivity and collaboration functionality they need, it ultimately will mean fewer Office licenses, and may lead some companies that don't need Office's robust functionality to eventually abandon it entirely, she added.
Microsoft's Elop would argue that Office Web Apps will preclude people from doing that. He said that existing Office users likely will go to Microsoft's Office Web Apps before a competing service because of the common user interface and brand.
But McLeish said that Office Web Apps actually may be less intuitive to office users than some of its competitors, and that it might actually be easier for someone to use Google Apps or Zoho if they are already familiar with Office.
"In terms of the Web Apps, to access them you need to register for Windows Live Spaces," she said, which currently has more than 100 million users. "For people familiar with this environment and Windows Live SkyDrive ... accessing Office Web Apps may not seem complex to navigate. But for people without experience on this site there will definitely be a bit of a learning curve."
Google and Zoho, on the other hand, are "very easy to get started on today," she said, requiring just one step to register before someone can work on a document or spreadsheet.
The current situation certainly sets the stage for a competitive showdown when Office 2010 and Office Web Apps hit the market early next year, McLeish said. "The alternatives are maturing, becoming much more viable options for organizations looking to save money," she said. "It's going to be much more competitive for Office 2010."