Stephen Elop, president of the Microsoft Business Division, introduces new capabilities for Office 2010 in his Worldwide Partner Conference 2009 keynote session in New Orleans, Monday, July 13, 2009.

Microsoft on Monday took the battle directly to it arch rival Google, with an announcement of a free online version of its Office software, to be launched in 2010.

Within days of Google's announcement of plans to challenge Microsoft's virtual monopoly in providing operating systems for PCs, Microsoft announced it was willing to forego a slice of its Office revenues in the short term, to kill Google's struggling online Office-like applications.

Users of the free online Office will be able to create and edit documents, spreadsheets and Powerpoint presentations by using tools they are familiar with from the desktop software. Although only a “lightweight” version of the software, to make it more suitable for use in internet browsers, it would still provide a fuller service than online rivals such as Google Apps, said Stephen Elop, head of Microsoft’s Business Division.

Microsoft announced that it is streamlining the number of Office editions from eight to five and enhancing each edition with additional applications and features. The company also announced that Office Web applications will be available in three ways: through Windows Live, where more than 400 million consumers will have access to Office Web applications at no cost; on-premises for all Office volume licensing customers including more than 90 million Office annuity customers; and via Microsoft Online Services, where customers will be able to purchase a subscription as part of a hosted offering.

Google says it has more than 15m users of its free suite of applications, but paying customers for the premium version number only hundreds of thousands, while Microsoft claims about 500m people have Office on their PCs, but half of these use pirated copies.

Microsoft rejects criticism that it’s late to the online party, saying that competitors have just been playing a major game of catch-up.

“Lots of competitors are doing nothing beyond copying what we have done in our product for years,” said Chris Capossela, a senior vice president in Microsoft’s business division. “They have weekly releases to add things like bold and italics and more than four fonts. We have to redefine what productivity means to 500 million people.”

Microsoft makes most of its money selling to corporate users and only a small number of home users are likely to abandon the PC version of Office in the short term, said Matt Rosoff, an analyst at Directions on Microsoft, a research group.

With virtually all of its sales coming from Office, the Microsoft business division made $12.4bn in operating profits last year, or 42 per cent of the total for the company. Stephen Elop said Microsoft would experiment with placing advertising on the online applications before making them publicly available in the first half of next year.

Microsoft said Office 2010 and related products will deliver innovative capabilities and provide new levels of flexibility and choice that will help people:

•	Work anywhere with Office Web applications - - the lightweight Web browser versions of Word, PowerPoint, Excel and OneNote - - that provide access to documents from virtually anywhere and preserve the look and feel of a document regardless of device.
•	Collaborate better with co-authoring in Microsoft Word 2010, Microsoft PowerPoint 2010 and Microsoft OneNote 2010, and advanced e-mail management and calendaring capabilities in Microsoft Outlook 2010, including the option for users to ”ignore” unwanted threads.
•	Bring ideas to lifewith video and picture editing, broadcast capability in Microsoft PowerPoint 2010, easy document preparation through the new Microsoft Office Backstage view, and new Sparklines in Microsoft Excel 2010 to visualize data and spot trends more quickly.