Microsoft Retargets a Cloud-Computing Juggernaut

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Here comes Mr. Softy again. Microsoft (Nasdaq: MSFT  ) has started offering its cloud-based office platform, Office 365, in a public beta version. The product will officially be available next year. Microsoft is pushing deeper into cloud-based productivity offerings, a natural progression of Office that also puts the company on a collision course with Google's (Nasdaq: GOOG  ) Apps suite of cloud-based tools.

Here's the story
The new Office cloud combines Office Web applications with some of Microsoft's other online sharing tools, like SharePoint. Microsoft plans a plethora of new features for it, including new email and IM features.

Microsoft's target markets include small businesses with 25 or fewer employees. This is clearly not an individual user solution. But Mr. Softy will also be looking at the educational markets, with slightly different plans for faculty, staff, and students. Perhaps the company intends to make a more aggressive run at academic powerhouses like Blackboard (Nasdaq: BBBB  ) and others.

My, what high sales you have
However, with Microsoft coming off a very successful launch of Office 2010, the natural question is why Microsoft feels the need to follow up with a cloud-based successor so soon after 2010's launch. The main reasoning is simple: to combat Google. Across the personal software universe, and increasingly in the corporate one, Google Apps is nibbling away market share. Recent studies show that its products serve almost 20 % of U.S. companies. Surprisingly, Google found highest penetration in large enterprises with more than 10,000 employees -- typically Microsoft's bread and butter.

While Microsoft's superstar has long been Windows, the MS Office suite works just as hard to drive the bottom line. In fact, Microsoft's business unit, which includes other products like its Dynamics suite, generated 17% more operating profits than Microsoft's Windows unit last quarter. So while Google Apps' increasing penetration into small businesses and enterprise hasn't cut too deeply into Microsoft's Office revenue yet, the company is aggressively working to head off the threat by introducing a product aimed squarely at bringing Google users back.

Big dogs in the park
Competition for Microsoft's cloud-computing services is also coming from IBM (NYSE: IBM  ) , which is looking to make a stronger presence by providing more services and products for use on the cloud. In addition, the company has a direct Office rival named Lotus Notes. IBM's software-as-a-service platform could get stronger over the next few years with wider cloud integration, giving more competition to a nascent Office 365.

Foolish final thought
Whoever the service provider is, the idea of cloud computing is catching on fast. While Microsoft risks reduced sales by more directly competing with Google's pricing on a cloud-based Office suite, the alternative of ignoring the growing threat would be an even more unwise decision.

Arunava De does not own any shares of the companies mentioned. Google and Microsoft are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers choice. Blackboard is a Motley Fool Stock Advisor recommendation. Blackboard is a Motley Fool Hidden Gems recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Blackboard, Google, International Business Machines, and Microsoft. Alpha Newsletter Account, LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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