Microsoft fights Google with web-based office

Microsoft Corp. is updating its online corporate software offerings to include a full Internet- based version of Office 2010 for the first time, an effort to stave off competition from Google Inc. for business accounts.

The Office 365 suite of programs was released this week in 40 markets, Chief Executive Officer Steve Ballmer said at an event in New York. Software will cost small businesses $6 a user each month for a package with programs like Office Web Apps and Exchange e-mail software, Microsoft said. For an additional $12 a month, companies can add a full version of Office, including Word and Excel programs.

Microsoft, based in Redmond, Washington, is trying to keep Google’s office-productivity software, called Apps for Business, from making further inroads with corporate and government clients. The two companies are fighting for customers who want more applications hosted in the so-called cloud -- on a network rather than a hard drive. The full online version of Office follows last year’s release of the more basic Office Web Apps.

“Financially, it will be a while before Office in the cloud becomes meaningful, but it provides another delivery mechanism for some of Microsoft’s mainstream products and brings them on par with Google Apps,” said Sid Parakh, an analyst at McAdams Wright Ragen in Seattle, who recommends buying Microsoft shares.

This update represents the first time Microsoft will sell a full version of Office through an Internet-based cloud service, and also marks the first time companies can license the programs on a per-user, per-month basis, said Wes Miller, an analyst at Directions on Microsoft in Kirkland, Washington.

The software allows Microsoft to compete for a larger percentage of companies’ technology spending, said Microsoft Office Division President Kurt DelBene at an event at the company’s headquarters in Redmond, Washington.

Customers can save money with the product, which eliminates the need to maintain server computers and software. Microsoft estimates the average 1,000-person company will save about $350,000 a year over a four-year period, DelBene said.

Microsoft’s traditional packaged software business can compete for about 15 percent of corporate spending, whereas the addition of cloud services allows Microsoft to compete for five times that, he said. It also enables Microsoft to sell more to small and mediums-sized businesses, he said.

Service providers including Vodafone Group Plc, Telstra Corp., NTT Communications Corp., Telefonica SA and Intuit Inc. will sell Office 365 to their customers this year, Microsoft said in a statement.

For larger businesses, prices start at $2 for basic e-mail, and companies can get a full copy of Office and other programs like social networking and videoconferencing for $24 a month. The software services are an update to an earlier product called Business Productivity Online Suite, or BPOS.

Microsoft released Office 2010 a year ago, and said earlier this month that it’s being adopted by business customers five times faster than the previous version. Sales in the business division, which is mainly revenue from Office, rose to $5.27 billion last quarter, exceeding the $4.9 billion average of analysts’ estimates compiled by Bloomberg. The unit is Microsoft’s biggest in terms of revenue.

Microsoft also offers a consumer version of Office Web Apps, which are scaled-down versions of the Office applications. The company said earlier this month that it has almost 50 million users for those programs.

Google counts 3 million corporations and other organizations as customers of its Apps business software, including McClatchy Co., the National Oceanic and Atmospheric Administration and the states of Wyoming and Wisconsin, who signed on with Google in the past month, according to spokesman Andrew Kovacs. Google charges companies $50 a user each year, and offers a free version for consumers.

Google Apps has 30 million active users overall, and doesn’t break out how many of those are paying customers.

Microsoft first started running corporate applications for a customer in the cloud in 2005 with an agreement with Energizer Holdings Inc., the battery-maker based in St. Louis.

“It’s six years since we first started down this road, yet we’re more optimistic about what can be done and the scenarios that can be affected,” Ballmer said.