Microsoft is hitting back at Google in the cloud with the release of its Office 365 offering – a cloud service which extends Office to the cloud.
But not to be outdone, Google got its own punch in first on Monday night – with a blog post offering "365 reasons to consider Google Apps".
It's the latest instalment in a battle between the two in which Google is seeking to undermine Microsoft's Office monopoly – which generates around 50% of its profits – and divert some of the revenue to itself, while also getting more people to use the internet, where its search offering, and associated advertising, dominates.
Part of the reason driving Microsoft to make the shift – so that people in businesses can get Office-like facilities directly online – is people like Tom Conophy, who are stirring anxiety and action in Microsoft's executive offices these days.
Conophy, the chief information officer of the InterContinental Hotels Group, decided earlier this year to begin moving nearly all the company's 25, 000 office workers off Microsoft's email and Office applications onto Google's web-based alternatives.
About 6, 000 employees in the hotel management company have converted so far, Conophy says, and things are going well. The savings, he estimates, will add up to millions of dollars a year. And Google's online offerings, he says, have improved steadily since it entered the business market four years ago.
''We could do this now because the Google cloud apps are ready for prime time, " Conophy said.
Halting such defections is a top priority at Microsoft. Office 365 is the response – a cloud-based version of Microsoft's email, whiteboard collaboration software and word processing, spreadsheet and presentation programs, which will get a marketing launch later on Tuesday from Steve Ballmer, the chief executive.
But in this battle, Google is already making a preemptive strike. That Office 365 is on the way has been known for some time – and so Google has been shoring up the defences around Google Apps.
On Monday, the day before the launch, it put up a post on its Enterprise blog offering to help people make "an informed choice", suggesting that "Office 365 is for individuals. Apps is for teams" and "Office 365 is built for Microsoft. Apps is built for choice" – on the basis that "Office 365 is optimised for Windows-based PCs and devices, which reduces your flexibility. Our applications are designed to work well on any device, on any operating system. Desktop, laptop, Chromebook, tablet, smartphone. Windows, Mac, Linux, Android, Blackberry, iOS, Windows Mobile. "
In fact, you can connect to Office 365 from a tablet or smartphone – note that Google only suggested it was "optimised" for a PC.
Microsoft's long-awaited move, analysts say, is a studiously crafted bet, including various offerings at different prices. They are not sure though whether it is a workable strategy – or wishful thinking. Microsoft's plan is to embrace the demand for cloud-based tools for office workers, which promises to be less costly for companies than conventional software, and yet avoid cannibalising the business that is its biggest single money-maker.
''If Microsoft stumbles, it really opens the door to Google, " said Matt Cain, an analyst for Gartner. "It's a tremendous long-term threat to Microsoft and its Office franchise. "
The Microsoft unit that includes the Office family of products is a $20bn-a-year business with pre-tax profit margins of 60%. It's bigger and more profitable even than the company's other big profit engine, the Windows PC operating system – which ebbs and flows with the sale of PCs.
Google portrays the arrival of Office 365 as an endorsement, if not a capitulation. ''This is a recognition that our business is for real, " said David Girouard, president of Google's enterprise division. "We've really helped move the needle in the marketplace. "
The company now claims more than 30 million active users of Google Apps, its collection of online office productivity and communications programs. But about 12 million of those users are university staff and students, who typically get free access to the apps.
The standard charge for business and government customers is $50 per user a year. Google will not disclose how many customers pay that fee. However, in its latest quarterly results revenues from "non-advertising" sources was $269m, compared to $8. 2bn from advertising incomes.
Google says Apps are gaining momentum. Earlier in June, it announced a series of large converts. The National Oceanic and Atmospheric Administration, the US agency that conducts climate and ocean studies, with 25, 000 employees, is adopting Google Apps. Others include the state of Wyoming, with 10, 000 workers, and the McClatchy Group, a publishing chain, with 8, 500 workers.
The subscription renewal rates to Google Apps, Girouard said, are higher than 90% and for larger companies the rate is nearly 100%.
There are other cloud-based business email, productivity and collaboration tools including entries from Zoho, VMware's Zimbra, IBM's Lotus Live and Salesforce. com's Chatter.
Yet Google, analysts say, is the main rival that Microsoft has in mind with Office 365. ''There's no doubt that the increasing popularity of Google Apps has forced Microsoft's hand, " said Melissa Webster, an analyst at IDC. "But Microsoft is really embracing the cloud now. This is the other shoe dropping. "
At $50 a year, Google's pricing seems far more appealing than the standard price for the Office PC software, which costs from $200 to about $400, depending on features. Office 365 prices are from $2 per user a month to $27 per user a month.
The $2-a-month service is just email and is intended for companies that want to extend communications to employees currently not being served, such as factory workers. The $27-a-month offering is all the online features, including Web conferencing and digital whiteboards for team projects, and a license to the most powerful version of the Office personal computer software.
A $6-a-month offering is aimed at extending Microsoft's email server services and collaboration tools, like SharePoint, to small businesses. These small businesses typically have the Office PC software but not the related software, analysts say.
So with cloud-based versions of Word, Excel and PowerPoint, plus several new communications and collaboration tools, that offering could be quite appealing, analysts say. The price, at $72 a year, is somewhat above Google's, but it carries the Microsoft name and familiarity.
"It could be a lot of net new business, and stable recurring revenue, if Microsoft can pull it off, " Webster said.
The question though is whether doing so will add to Microsoft's revenues – or whether that will eat into Office revenues and profits. And if people get the idea of using the cloud, will that make Google more attractive – and cheaper? For Microsoft, the risk is that the cloud may turn out to be a knife.