Microsoft's Head Is in the Clouds

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In a long-overdue move, Microsoft (Nasdaq: MSFT) is ready for its cloud computing close-up.

The world's largest software company is announcing a Web-based version of its upcoming Office 2010 productivity software. It'll be limited in functionality -- but entirely free to use online.

No one can deny that Office apps like Word and Excel are industry standards. Cloud-computing initiatives like Google's (Nasdaq: GOOG) Apps and Adobe's (Nasdaq: ADBE) Buzzword are neat, but they're nothing more than bit players.

This doesn't mean that Microsoft's proactive push into the clouds is a surprise. If anything, it's inevitable. Making it free is a bigger shock, but it's also a humbling truth. If Web Office had come flavored exclusively as a premium subscription product, it would have opened the door for the free or cheap alternatives put out by Google, Zoho, and Sun Microsystems (Nasdaq: JAVA).

Here is where the game gets interesting. Google turned heads last week  by announcing that it will enter the operating system market. Doesn't that blunt this morning's announcement from Microsoft? If the free Web Office is enough for most casual computer users, isn't this going to sting Microsoft's commercial version of Office 2010 as well as Windows 7? The operating systems will be less of a factor when it's all about connectivity.

Microsoft's Internet-based Office won't work only on Internet Explorer. Initially, it also will work with Firefox and Apple's (Nasdaq: AAPL) Safari. Google Chrome is a tactful no-show on the initial browser list, and that's both justified (given Chrome's measly share of the market) and tactical. Now that Google has proven to be the true enemy -- and not Apple -- Microsoft needs to cut off Google wherever it can.

In the end, Microsoft has to balance the need to make the Web-based productivity package accessible to as many people as possible, but also in a way that encourages them to own the commercial version.

It's a delicate balance, and also a grim reminder that Microsoft may never be the revenue-generating giant it used to be.

The world according to Microsoft:

• The software giant has been cutting prices lately.
• Google Chrome -- the operating system -- will have an uphill battle next year.
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