Microsoft may have had its hand forced by Web-based alternatives, but the software giant will deliver a free Web version of Office, called Office Web Apps, that will launch in tandem with the paid, desktop version of Office 2010, which is in technical preview now and due to launch in the first half of next year.
With both online (Office Web Apps) and offline (Office 2010) versions of Office forthcoming, Microsoft seemingly has all the bases covered: A new, feature-rich desktop productivity suite and a lightweight online version to compete with emerging Web-based free alternatives such as Google Docs and the Zoho suite.
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Slideshow: A Visual Overview of Office 2010
But Microsoft is also in a challenging position where it must avoid cannibalizing sales of its own lucrative desktop productivity suite ($20 billion in revenue forecasted for 2009), yet not lose out to online alternatives.
Sheri McLeish, analyst at Forrester Research, says that Microsoft's expansion of Office will be good for the industry and provide Microsoft with a worthy one-two punch.
"If we didn't have these free alternatives from Google and Zoho, surely Microsoft would not be doing this," says McLeish. "But all the competition in the productivity tools space benefits businesses and consumers."
Web-based apps a consumer thing for now
Details about the features of Office Web Apps have been scant, but we do know that consumers must have a Windows Live account to access Office Web Apps. There are 400 million active users worldwide using the free Windows Live Online Service, according to Microsoft.
This is a way to drive people to the Bing search engine and other Windows Live online services, such as e-mail, storage, and blogging tools. Google has the same strategy of directing people to its search engine via Google Apps and its many other online services.
Because consumers are more comfortable with Web-based apps that they can access through a browser on a laptop or smartphone, they are more likely to embrace Office Web Apps than business users.
"I don't think we'll see a huge increase in the usage of Web-based versions of Office at enterprises," says McLeish. "Today businesses are still mostly using desktop tools and e-mailing files around. But Microsoft needed to have that Web-based option out there."
Office Web Apps' enterprise edge
Although Web Apps may be a better fit for consumers and enterprise adoption of online apps will be slow, the two worlds will blend eventually, says McLeish -- and this is where Microsoft will have an advantage over other Web-based alternatives.
"The big differentiator here is that Microsoft is providing more options to businesses in the ways which Web-based apps can be deployed," says McLeish.