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June 27, 2011 11:04 pm

Microsoft launches cloud version of Office

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Microsoft is set to place one of its biggest bets yet on cloud computing with the launch of Office 365, an online version of its most widely used business software.

The software company’s belated push online with one of its core businesses comes more than four years after Google came up with its own service, but has still left it in a strong position to dominate the market for online applications used by white-collar workers, according to analysts.

Since many businesses are starting to look for the first time at moving applications to the internet, “I think they got the timing right”, said Wes Miller, an analyst at Directions on Microsoft, an independent research firm. “Microsoft all along has bet big that the cloud will be a direction, but this is the first time everything is focused on it.”

Despite setting the pace with the paid-for version of its Google Apps, the search company has made fewer inroads than most tech industry observers expected when it took aim at one of Microsoft’s cash cows.

The search company said that its paying users now number in “the millions”, although it does not disclose details, and most of the 30m users it claims for Apps are college students and others who do not pay.

The new service combines an online version of the company’s ubiquitous suite of Office productivity applications with cloud-based versions of Exchange, Lync and SharePoint, its server software for e-mail, unified communications and online collaboration, respectively.

The price for the small-business version of the software has been set at $72 per employee a year, above the $50 charged by Google.

But with more capabilities and the attraction for businesses of being able to move Office users to the new service with little training, it should catch on widely, analysts said.

Microsoft’s business division, which rests largely on the Office productivity applications, became its most profitable operation in the first nine months of its current fiscal year on the back of the launch of Office 2010.

Operating profits rose by 20 per cent to $10.2bn, topping those of Windows, which has suffered from a weak PC market.

Besides defending its existing business, Microsoft hopes that the move online will boost revenues as it takes on more of its customers’ computing operations rather than simply selling them software.

The online subscription service means it will also be less vulnerable to pirated versions of its software, which company officials believe are used by roughly half of the 1bn people who use Office.

Some tech-industry executives questioned whether Office will retain its central position in the lives of white-collar workers as the ways they work with information online change, and as they rely more on smartphones and tablets.

Workers will turn to new online services that are less tied to the document-based approach of Office, predicted Paul Maritz, chief executive of VMWare and a former Microsoft executive.

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