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Microsoft CEO Steve Ballmer launches Microsoft Office 365, the company's newest cloud productivity and collaboration service for businesses of all sizes, June 28, 2011 in New York. (JASON DECROW/AFP/Getty Images)
Microsoft CEO Steve Ballmer launches Microsoft Office 365, the company's newest cloud productivity and collaboration service for businesses of all sizes, June 28, 2011 in New York. (JASON DECROW/AFP/Getty Images)

Microsoft wants you to rent an Office in the cloud Add to ...

Microsoft is repositioning one of its oldest and most profitable businesses in an attempt to cash in on the growing popularity of cloud computing and catch up to rivals such as Google.

The Redmond, Wash.-based software giant unveiled the newest version of its productivity software package, named Office 365, yesterday. It includes popular staples such as Word and Excel, but will also be available as a cloud-based service.

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Because the software is accessed through the Internet - the "cloud" - and is stored on Microsoft's computer servers, rather than a company's own in-house servers, it allows businesses to use computer programs and access files and documents from anywhere. It also allows them to rent computing tools on a lower-cost, pay-as-you-go model.

With Office 365, Microsoft is primarily targeting small and medium-sized businesses, many of whom have turned to low-cost cloud-based software such as Google Docs. Businesses will pay a monthly fee to access the Office software from a computer, smart phone or other device. The new suite also includes tools such as Web site builders and e-mail servers.

It represents an attempt by Microsoft to gain a foothold in what is likely to be one of the most lucrative areas of the IT industry in the next decade. Should it manage to convince a significant portion of its massive Office user base to adopt the cloud-based version of the productivity suite, users who would otherwise be reluctant to try out cloud computing may find it an easy entryway to the new technology.

"What happens when Microsoft Office meets the cloud? Collaboration as well as productivity from anywhere for any business of any size," said Microsoft CEO Steve Ballmer. "With Office 365, people can stay connected using instant messaging … They can conduct real-time virtual meetings."

With Office 365, Microsoft is taking aim primarily at Google and its popular, low-cost, Internet-based productivity software. The use of cloud-based tools among small and medium-sized businesses is still fairly low, however. A Microsoft Canada survey found more than 70 per cent of such businesses understand the advantages of the cloud, but only 30 per cent are investing in the technology.

For businesses, the main advantages of the cloud include the ability to access software and company data from anywhere, on any device. Additionally, businesses can often cut in-house IT costs by outsourcing their software and other IT-related needs. Many businesses are still reluctant to adopt cloud solutions, however, because of security concerns associated with hosting potentially sensitive data on offsite servers. Users have also voiced concerns about how cloud-based services become partially or completely unusable without an Internet connection (something Microsoft has tried to address with an offline mode in Office 365).

In countries such as Canada, where most Internet users have connections that include data caps, the cost of shifting more and more IT functions to the Web is also a factor.

But Microsoft hopes the new version of Office, which is used by about a billion people worldwide, will be a painless way for businesses to become comfortable with the cloud. The move is a huge bet for the software giant, which makes billions from selling the traditional version of Office, but is now trying to convince potential customers to essentially rent the newest iteration of the suite for a price that starts at about $7 per user a month.

"It is the most significant gamble Microsoft has taken in the entire history of Office," said independent technology analyst Carmi Levy. "But it's a gamble Microsoft has no choice but to make. If Office continues to exists exclusively in its current form, it will die a slow death."

Although services such as Google Docs have not made a significant dent in Microsoft's traditional Office customer base, Mr. Levy notes a growing trend of consumers and businesses opting for such tools. Should Microsoft not integrate these offerings with its own software, it risks being left behind.

Initially, Microsoft is pushing Office 365 to small and medium-sized businesses, many of which may already use older versions of the productivity suite. The software giant hopes the appeal of features such as simultaneous document editing and instant-messaging software will convince customers to switch to the new pay-as-you-go model.

"The best collaboration technology has to be available to all businesses, from massive global enterprises with thousands of workers, to feisty startups with just a couple of employees," Mr. Ballmer said.

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