Microsoft puts Office in the cloud to Defend Its Office Business

Microsoft is making its biggest move into the mobile, Internet-accessible world of cloud computing this week, as it takes the wraps off a revamped online version of its hugely profitable Office software suite.

The world's largest software company is heaving its two-decade old set of applications -- including Outlook email, Excel spreadsheets and SharePoint collaboration tools -- into an online format so that customers can use them on a variety of devices from wherever they can get an Internet connection.

It wants to push back against Google Inc, which has stolen a small but worrying percentage of its corporate customers with cheaper, web-only alternatives, which remove the need for companies to spend time on installing software or managing servers.

"It's obvious that Microsoft has to do this if they're going to remain competitive with Google," said Michael Yoshikami, chief executive of money manager YCMNET Advisors. "It's something they have to do."

Microsoft shares rose 3.7 percent on Monday, the largest gain in a single trading day since September, partly buoyed by hopes that it can ultimately boost profits by extending its software dominance to the growing cloud sector.

"If they execute effectively and it's adopted, it could be a game changer," said Yoshikami. "Whether or not that will happen is a whole other story."

Microsoft has offered online versions of some Office programs -- chiefly Outlook email -- for its corporate customers for several years, and last year rolled out free versions for individual home users.

Chief Executive Steve Ballmer is set to present an overhauled and updated set of offerings -- collectively called Office 365 -- at an event in New York City on Tuesday morning, underlining the company's newfound online focus.

GROWING MARKET

The market for web-based software services is heating up, and every company, government department and local authority is getting pitches from Microsoft and Google whenever they reevaluate their office software.

It's a new challenge for Microsoft, which built itself up on expensive versions of software installed on individual computers. That business model turned the Office unit into Microsoft's most profitable, earning more than $3 billion alone last quarter.

Microsoft's plan is to make up for smaller profit margins from web-based applications -- due to the cost of handling data and keeping up servers -- by grabbing a larger slice of companies' overall technology spending.

Last October, when it rolled out a test version of the new service, Microsoft said it planned to charge from $2 per user per month for basic email services to $27 per user per month for advanced offerings. Google charges a flat fee of $50 per user per year for its Web-based Google Apps product, which offers email, calendars, word processing and more online.

Microsoft, like Google, will host users' data remotely, and maintain all the servers in vast data centers. Unlike Google, it will also allow companies to put their data on dedicated servers if they choose, or keep the data on their own premises.

The full launch of Office 365 will spice up the lively competition with Google for new users.

Earlier this month, Google snagged InterContinental Hotels Group as a major customer, moving 25,000 of its employees onto Google email from Outlook.

Google, which has had the most success in the small and medium-sized business range, says there are now 40 million users of online Google Apps suite. Microsoft does not publish equivalent numbers, but research firm comScore has estimated 750 million people worldwide use Office in some form.

But Internet-centric Google -- whose success is based on its dominance in web search -- is confident it has the upper hand in the cloud.

"Compared to what they (Microsoft) have in the market today, they have nowhere to go but up," said Dave Girouard, head of Google's worldwide enterprise business. "We feel we're years ahead of them in terms of building a viable cloud solution that just works."