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Can Microsoft beat Google in the battle to rule cloud computing?

By Lara Farrar, for CNN
Into the ether: Microsoft is joining the battle to rule cloud computing.
Into the ether: Microsoft is joining the battle to rule cloud computing.
STORY HIGHLIGHTS
  • Microsoft has launched cloud-based version of its Office software
  • Cloud-based computing is latest paradigm shift in technology
  • Information is stored remotely on servers rather than on private computers
  • Microsoft believes it can compete with Google application and other web-based software companies

(CNN) -- Microsoft made a major leap skywards this week with the release of a cloud-based version of its Office software to businesses called Office Web Apps.

But can it dominate cloud-based computing or will new giants emerge?

Microsoft's new product launch counters what many tech commentators thought the preeminent software company would never do.

"A lot of people say we will see pigs fly before we see Microsoft Office running in the cloud," said Tim O'Brien, Microsoft's senior director of platform strategy.

"We are betting big on the cloud with our most successful product, and we are investing heavily both in the product engineering side and the physical infrastructure side."

Video: Microsoft launches Office 2010

While Microsoft has offered varying cloud services for a while -- 15 years, according to O'Brien -- the launch of Office 2010, one of Microsoft's most lucrative products, is noteworthy.

It means a company that has made its mark selling shrink-wrapped software will be going head-to-head with Google and other firms that have grown up offering productivity tools online.

"It goes without saying that this is a massive step-function for the industry and it is a disruptive one," O'Brien told CNN.

"The history of our industry has shown that it is quite fashionable for disruptors to write off the existing market players while the existing market players have an opportunity to reinvent themselves as a business."

It is really high drama. It is titans going at each other at their core product base.
--Sheri McLeish, technology analyst

The move to the cloud, where applications and information is hosted on remote servers rather than privately owned computers and databases, is the latest paradigm shift in computing.

Is cloud computing safe?

Companies that once dominated traditional models, like Microsoft and IBM, have had to find ways to reinvent themselves or potentially become obsolete.

Office Web Apps isn't a complete reinvention for Microsoft but it allows users to access online versions of programs such as Word, Excel and Powerpoint. Similar to the advertiser-supported Google Docs, documents can be edited and shared via a Web browser.

The tools, to be released for consumer use in June, will be offered free to Microsoft's more than 500 million users of Windows Live services like Hotmail and Live Messenger, the company said. A technical preview of Office Web Apps is available now via SkyDrive, Microsoft's online storage service. Microsoft will also offer the online productivity suite to the more than 400 million users of Facebook.

Analysts say business is where Microsoft stands to make the most gains in the cloud.

"There are millions and millions of existing customers of Microsoft who have familiarity and affinity for their products," said Sheri McLeish, an analyst with Boston-based Forrester Research. "Microsoft is, if nothing else, pervasive."

Forrester estimates that 81 percent of businesses run the 2007 version of Microsoft Office. While the use of the paid Google Docs enterprise software is steadily increasing, it is still in the single digits, according to McLeish.

Google is up way past their bedtime when it comes to selling businesses.
--Tim O'Brien, Microsoft
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"People already have Office so they don't need Google. If they already have something, there is no need to go looking for it," said McLeish.

Microsoft itself says Google has little chance at taking away its market share.

"Google is a consumer Web company trying to figure out how to sell to businesses. They have a long way to go," O'Brien said.

"Google is up way past their bedtime in the enterprise [space]."

However Google does not see its applications in direct competition to Microsoft.

"I certainly would characterize our Google Apps business very, very differently," Ken Norton, a senior project manager at Google, said. "It has been hugely successful."

More than 2 million businesses run Google Apps with more than 3,000 signing up each day, according to the company. Norton says one of the biggest challenges for Microsoft is whether it innovate rapidly in the ever-changing environment of the Web, pointing out that Google had an "optimized" version of Gmail available for the iPad almost immediately after Apple released the device last month.

The search giant is also continuing to release new features on Google Labs, its site used to demonstrate and test new products, he said.

"In traditional software, you have to plan really far ahead," Norton told CNN.

"We can do releases constantly, which allows us to do innovative things... and get immediate responses from our end users. We are in a position where we are able to respond very quickly."

Other cloud software providers, like Zoho and SalesForce, said that while they welcomed Microsoft's move into the space, they do not consider it a major threat to business.

"It is all about innovation," said Raju Vegesna with Zoho, a California-based company offering online productivity tools.

"Sure, Microsoft has great distribution and other things in the desktop world, but the Web game is different."

Jeremy Cooper, Asia Pacific regional marketing director for SalesForce, believes Microsoft is taking a risk.

"Microsoft has a lot to lose in this environment while net native companies have nothing to lose," Cooper told CNN.

"Our business has grown up entirely on this model. Our ability to win customers in this environment is not conflicted with an early business model and technology model."

Where Microsoft stands to loose the most ground is not with the consumers of today but with younger generations using iPads instead of laptops and writing notes via social networking sites instead of Word documents.

"What about the obsolescence of tools like this?" McLeish said.

"There is a bigger issue about what is the value of a document? In the future, that will become a very outdated notion."

"It is really high drama. It is titans going at each other at their core product base. At the end of the day, the consumers win because there will be more choices and there will be more competition, and it is going to force all of these vendors to step up and offer something more," she said.