I'm guessing some of you remember those crazy dot-com era predictions that the spread of web-based applications would threaten Microsoft's (Nasdaq: MSFT) Windows and Office monopolies. Things didn't quite work out that way, and during the last decade, Bill Gates and Steve Ballmer laughed at those predictions all the way to the bank.

But for Office, at least, Judgment Day might finally be on the horizon, courtesy of Google Apps and its constantly expanding feature set. Worst of all for Microsoft, there's no simple way to respond to the threat.

Is tech history repeating?
In some ways, Google's (Nasdaq: GOOG) challenge to Office's control of the productivity software market has a lot of historical parallels. It's another variation of what business guru Clayton Christensen termed "The Innovator's Dilemma," in which the market position of an established technology is "disrupted" by a newer, cheaper technology that gradually offers more and more of the key features the older one provided.

The disruption of the UNIX server market, dominated by proprietary hardware from IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ), and Sun Microsystems, by cheaper servers using either Windows or Linux, and running on Intel (Nasdaq: INTC) and AMD (NYSE: AMD) processors, is a good example of this phenomenon. The first Windows servers to hit the scene in the mid-'90s generally couldn't match UNIX systems in terms of raw horsepower, and they also tended to lack some of the security and high-reliability features that UNIX users took for granted. But they could provide access to applications and information at a much price tag, and often were also easier to install. And as Windows and Linux servers steadily addressed their shortcomings relative to UNIX hardware, they wound up eclipsing them in terms of popularity.

It's easy to see how Google Apps fits into this storyline. Offered for free to consumers, and for only $50/year per user to enterprise customers looking for uptime guarantees and 24/7 customer service for both the productivity apps and Gmail, Google's pricing drastically undercuts Microsoft Office. Office 2010, due out next month, costs at least $119 for a "Home and Student" version that features Microsoft's Word, Excel, PowerPoint, and OneNote apps, and at least $349 for a Professional version that also includes the company's Outlook, Access, and Publisher apps.

Moreover, Google Apps can be accessed from any computer, along with any files that a user's working on. In contrast, a copy of Office 2010 can be installed on three systems at most, and like all PC-based software, it's prone to getting your files stuck on a hard drive far from where you need them. As devices ranging from Apple's (Nasdaq: AAPL) iPad to Acer's low-cost netbooks boost the number of devices on which a consumer accesses documents, Google's ability to guarantee their availability on almost any device with an Internet connection can be pretty useful.

Getting good enough
Like many other disruptive technologies before it, critics of Google Apps are quick to point out the many features that it still lacks relative to Office. Most "power users" of Word or (especially) Excel will still find Google's word processing app (Google Docs) and spreadsheet app (Google Spreadsheets) inadequate. But then again, there are still many companies out there installing UNIX servers for critical business apps who will tell you that Windows and Linux just aren't good enough for their needs.

It matters most whether the cheaper technology becomes good enough to meet the needs of most mainstream users. And based on its latest release, unveiled earlier this month, Google Apps is arguably there. Google Spreadsheets has filled some major holes in its feature set; Google Docs can now properly format complex Office documents; and most importantly, multiple users can collaborate on editing documents virtually in real-time.

That last feature is a big one. Collaboration tools are probably the biggest reason why Google Apps is now used (according to Google) by more than 2 million businesses, and why companies like Motorola and Genentech have seen their employees widely adopt it to complement Office, even though they weren't required to. Or why the city of Los Angeles plans to migrate 17,000 employees to Google Apps. What's more, Microsoft and others will be hard-pressed to replicate the complex technology developed by Google to quickly send out the changes one user makes to a document to all of the other people collaborating on it.

Microsoft's big problem
Of course, before Microsoft can try to match Google's technology, it has to be interested in doing so. While Microsoft plans to offer free, web-based versions of its Office apps with the release of Office 2010 this summer, users will need the paid version of Office to get collaboration tools, among many other features. Like many other companies previously caught in The Innovator's Dilemma, Microsoft might theoretically be able to offer a product that's competitive with its Google challenger, but it fears that doing so might cannibalizeits existing revenue streams. Thus, the market-share losses continue.

As the company's 2009 results show, Office might be the most critical part of Microsoft's empire. Microsoft's Business Division, which is dominated by Office sales, accounted for 32% of the company's 2009 revenue, and (more importantly) a whopping 60% of its operating income. And this was more than two years removed from the release of Office 2007, the last major update to the software suite.

With numbers like those, Google only has to take a modest chunk of Office's market share to do real harm to Microsoft's bottom line. And with each new release, it looks more and more like Google is up to the task.