Like two super-heavyweights cautiously circling each other, Microsoft ( MSFT) and Google ( GOOG) have both been grabbing the headlines recently as they try to land that killer punch. First, Google sent shockwaves through the tech sector with its Chrome OS, an operating system that's challenging Microsoft in the low-end PC market. Clearly unwilling to get trapped in a corner, Microsoft launched its counterattack Monday, adding more flesh to the bones of its online services strategy. The Redmond, Wash.-based firm previewed its Office 2010 software Monday at its Worldwide Partner Conference and also announced plans to provide Office applications for free to Windows Live users. Designed to deliver Word, PowerPoint and Excel as Web services , this strategy is a clear move onto Google's turf, but also could significantly boost Microsoft's cloud computing efforts.
Cloud services, which offer compute power and storage via the Internet, are fast becoming one of the tech sector's hottest technologies, thanks in no small part to the IT spending slowdown. Companies like IBM ( IBM), Microsoft and Amazon ( AMZN) are pushing cloud services as a way for firms to avoid the upfront costs of hardware and software. However, cloud computing is still in its relative infancy. Stymied by vendor in-fighting and businesses' reluctance to relinquish control of key applications and data, the technology is nowhere near widespread adoption. Microsoft's decision to provide Office as an online service may nonetheless provide a major boost to the cloud agenda, according to Roger Kay, president of analyst firm Endpoint Technologies Associates.
"I think it lends a greater legitimacy to the cloud," he told TheStreet.com. "Microsoft is a well-established supplier of software to corporations and individuals; if Microsoft says that 'this is where we want to be,' a lot of mainstream opinion will follow." Kay is also unconcerned about whether free software will hammer Microsoft's financials. "One of the things that Microsoft has learned in the last few years is how to create an upgrade path for people," he said. "There will probably be some
revenue hit, but there will also be some incremental business." The analyst explained that Microsoft is now shrewdly opening its software up to Linux users via browsers such as Firefox, Opera and Safari, which could ultimately bring in new revenue. With 400 million users of Windows Live, Microsoft can also attempt to up sell its own customer base. The tech bellwether will also provide Office applications via Microsoft Online Services, where customers will be able to purchase a subscription as part of a hosted offering. "For several years, Microsoft has been building up its cloud capability with the creation of monster server farms," said Kay, but added that Internet bandwidth poses a broader problem. "Serious enterprises are now ready to go over to clouds for just a few things because the network is not there," he explained. "If you're using the Internet to connect with the cloud, it's still iffy." Shares of Microsoft rose 84 cents, or 3.75%, to $23.23 during Monday trading, outpacing the broader tech market which saw the Nasdaq rise 2.12%.
A full version of Office 2010 is expected to be available in the second half of the year.