Although Microsoft didn’t mention the competition from Google during the announcement, many analysts see this latest move from Microsoft as part of the company’s strategy to protect one of its most profitable businesses against Google. Sheri McLeish, an analyst with Forrester Research, said "Microsoft was forced to provide a free product" as an answer to Google Docs. "It's a very competitive market out there, and this was Microsoft's opportunity to one-up Google by offering a much better product."
This isn’t the first time we’ve seen these two companies going head-to-head. Last month, Microsoft released Bing, its latest search engine that is designed to compete with Google’s engine.
Microsoft plans to unleash the Web-based version of Office sometime next year. Although the move is likely to be welcomed by many, Microsoft is walking a fine line in that it risks cannibalizing one of its most profitable products by giving away a free version. The company’s business software division made $9.3 billion in profit during the first three quarters of its 2009 fiscal year. The bulk of the unit’s sales come from Office.
Melissa Webster, an analyst with IDC, believes it is imperative for Microsoft to maintain its dominance with Office. Webster also noted a recent survey that found nearly everyone who used Web-based document editing software such as Google Docs also used Microsoft Office. "Web-based tools are not taking share away from Microsoft's desktop Office suite," Webster said. "But to the extent that these products are complementary, Microsoft needs to get in the game. They risk losing users as people get more comfortable using Web-based tools. And they risk losing their edge."
Chris Bryant, Microsoft's group product manager for Office, said customers have been asking for an online feature. He declined to explain how Microsoft plans to make money with the move, but hinted that advertising and fees for premium services such as online storage of large files could be possible. Of course, the free versions of Office won’t likely include all of the features of the desktop software, especially some of the new features that are coming with Office 2010, such as video editing in PowerPoint and image manipulation in Word.