Google unveils Web-based office suite

Google looks set to begin selling corporate America an online suite of software that includes e-mail, word processing, spreadsheets and calendar management, increasing the Internet search leader’s invasion on technological territory traditionally dominated software giants Microsoft and IBM.The expansion, to be unveiled today, looks set to hamper Microsoft Corp.’s efforts to convince businesses to buy the latest version of its Office 2007 software that was developed along with its new Vista operating system.

While Google’s latest foray into the corporate software market seems unlikely to upset the apple cart just now, AMR Research analyst Jim Murphy said it’s only a matter of time before the Mountain View-based company becomes a major player. Not only does Google have the financial clout, but an increasingly impressive portfolio of software such as Google adwords, Google mail, and acquired software such as Picasa.

“This is just the beginning,” Murphy said. “The real impact of what Google is trying to do probably won’t be evident for another five years.”

Google has been offering a free version of its online software suite called Google Apps for the past six months. More than 100,000 small businesses and hundreds of universities nationwide are using the free service, Google said.

The fee-based version, Google Apps Premier Edition, includes five times more e-mail storage — 10 gigabytes per e-mail box — as well as a guarantee that all services will be available 99.9 percent of the time with around-the-clock technical support. Additionally Google will offer mobile access to e-mail accounts through the BlackBerry devices that bind workers to their offices.

“This is a big step for us, but I think it’s a reasonable step,” Google Chief Executive Eric Schmidt said in an interview Wednesday. “Our product is so cheap that it’s sort of no-brainer to try it out.”

By offering its business software package at such an entry level price, Google is giving companies a greater incentive to delay buying Microsoft’s Office 2007 as they assess the pros and cons of a less expensive alternative, said Nucleus Research analyst Rebecca Wettemann.

“The timing (of this offer) is just brutal for Microsoft. It’s definitely a shot across their bow,” Wettemann said.

As they usually do, Google executives downplayed the company’s intensifying rivalry with the world’s largest software maker.

“We are not in this to get Microsoft,” said Dave Girouard, general manager of Google’s business software division. “We are in this to offer more compelling choices for consumers and businesses.”

Echoing that sentiment, Schmidt said he is trying to discourage people from viewing Google as the fly in Microsoft’s ointment. “We don’t operate that way,” he said. “We are trying to solve very different problems.”

Microsoft welcomes the competition, said Kirk Gregersen, the Redmond, Wash.-based company’s director of the Office suite. “It helps keep us on our toes.”

Google is looking at diversifying its revenue stream, by becoming less dependent on online advertising. Google already has been selling its search technology to companies, but that initiative has only had a humble impact so far. Software licensing accounted for slightly more than $100 million, or 1 percent, of Google’s $10.6 billion in revenue last year.

Microsoft, relied on software sales for most of its $44 billion in revenue last year, two contrasting companies indeed?

While Google has been expanding into software applications, Microsoft has been trying to build a more formidable Internet search engine. Interesting how both companies efforts have over time began to converge. That hasn’t prevented Google from widening its lead in online search during the past two years, emboldening the company to branch into other fields like corporate software.

Just how much Google is undercutting Microsoft’s price is not yet unclear. The listed retail price for Microsoft’s Office suite ranges from $149 to $679, but corporate customers generally negotiate substantial discounts based on the number of licenses that they buy.

In research released last year, Merrill Lynch analyst Kash Rangan estimated that the average corporate cost for Office works out to about $60 to $120 annually per user, assuming the software is used over a two- to three-year cycle.

Of course, price is not the only concern of large companies when they are deciding which software products to buy. Other important factors such as Security, reliability and performance also hold sway over corporate purchasing decisions.

By Google’s own admission, Microsoft’s word processing and spreadsheet program provide more bells and whistles than Google’s online alternatives.

But Google’s package will still appeal to many companies looking to provide more software tools and e-mail access to workers who work in stores or production plants that may not have all the latest applications. Google’s system also simplifies the ability to share and work on documents from various locations.

Two Fortune 25 companies, Procter & Gamble Co. and General Electric Co., have already signed up for Google’s software package. Google wouldn’t disclose how many of those companies’ employees are using the online suite.

Other early adopters include Salesforce.com Inc. — a pioneer in the push to deliver more software over Internet connections instead of distributing the programs on discs that directly install the coding on a hard drive.

The notion of leasing software online once was derided as a kooky concept because it was widely believed that most companies would never allow their vital information to be kept on computers owned and managed by an outsider like Google.

But the resistance to the idea seems to be dissipating as the Internet becomes more ingrained in daily living. In a survey of 198 organizations, Nucleus Research found that 51 percent were using some online software applications.