There is little doubt that PCs are being cannibalized by tablet and smartphone sales. However, it is also true that to get any real work done, most businesses need at least a decent word-processing program, and many can't live without a spreadsheet program as well. Microsoft (MSFT -0.25%) Office has become the dominant offering for productivity software, but the company may be slowly bleeding its cash cow dry.

The contenders
Many businesses are still choosing Microsoft Office, and the company carries a commercial gross margin of better than 80% because of the sales of this highly profitable software. In addition, Microsoft generated almost $7 billion in free cash flow in just the most recent quarter alone. A large portion of this free cash flow comes from the company's sale of Microsoft Office to both consumers and businesses. Apple (AAPL 1.30%) recently tried to rock Microsoft's boat by bundling for free its Pages software with any new Mac, iPad, or iPhone purchase.

For those who prefer the use of cloud-based solutions, Google (GOOGL -0.27%) Docs is a compelling solution. If you want to avoid using any of these options, there are also options like OpenOffice. The bottom line is Microsoft is not the only game in town, and each option offers its benefits and drawbacks. The question is, what can investors learn from what each company offers?

The Apple gamble
Apple's tight integration of Pages, Numbers, and Keynote with iCloud is a stroke of genius. In theory, as customers put more documents in iCloud, combined with their pictures, videos, and apps from their iPad and iPhones, they might need to purchase additional storage. This could lead to additional revenue and higher retention rates for the company's already loyal user base.

The idea that a customer can start a document on their Mac, update it on their iPad, and finish it on their iPhone sounds great on paper. However, Apple is missing some key features. First, the lack of file management is a key issue, as today you can only really see all of your iCloud items on the iCloud web site.

In addition, customers can only store documents, spreadsheets, and presentations in iCloud. The lack of a full-featured cloud storage option is a big missing piece if customers everywhere are going to use Apple's storage exclusively. In addition, Apple's web based versions of these apps are woefully weak and missing key features. In addition, a shared Pages document doesn't work well with mobile apps like Office2, Kingsoft Office, or others unless it is exported as a Word document first.

That being said, if a customer doesn't need to share their documents and just needs simple word processing or spreadsheets, do they really need Microsoft Office? Apple's gamble may pay off, but some of these issues are indicative of a company that spends just 3% of revenue on R&D.

The cash cow killer?
While Apple's gamble may take an incremental amount of sales from Microsoft Office, Google Docs has the potential to take down the whole ship. There are several big differences between Google Docs and Apple or even Microsoft's programs.

First, Google Docs saves everything automatically. While Microsoft Office documents can be saved to Skydrive, and Pages or Numbers can be saved to iCloud, it is still a process of typing Ctrl + S or Command + S as the case may be. If you work on a document, forget to save, and the program crashes, you still lose data. With Google Docs, the system constantly saves updates as you type or create.

Second, Google Drive can save everything and works well with PC, Mac, and devices. Just download the Google Drive program on your PC or Mac and tell it what to save to the cloud. While Skydrive does this too, without a Microsoft Office subscription of $99 a year, you get about half the storage space (7GB with Skydrive versus 15 GB with Google Drive).

Third, and maybe most important, Google Docs is free. The common user can create a document, share it, download it as a Word file, and it costs exactly nothing. To do this same thing with Microsoft Office costs about $140 for a single-user license, or $99 a year.

If Google can convince users to buy into Google Docs, it's not hard to imagine more usage of Gmail, Google+, and other services. The bigger the tie into Google's offerings, the more opportunity to sell ads for the search king.

Final thoughts
Microsoft's Office 365 subscription service of $99 a year gives you 5 licenses for computers and 5 licenses for mobile phones. The question many users may begin to ask is, do I want to pay $99 every single year if I just need to create documents or spreadsheets? The better question is, if I own two computers do I want to pay $280 (two $140 licenses) so I don't have to pay $99 a year?

Though the economy is improving and customers want to use what they are comfortable with, the idea of paying hundreds of dollars to use Microsoft Office might be asking too much. With Apple and Google offering real alternatives to users, Microsoft's own pricing might bleed its cash cow dry.