Office 2010 rolled out to businesses

Microsoft will release Office 2010 to businesses today, wary that its ubiquitous suite is facing an unprecedented threat from Google.

The world’s largest software company is upgrading its popular Word, Excel, Outlook and PowerPoint applications, and rolling out its own Office Web Apps to keep up with the new class of mobile, web-connected users that have emerged since the last upgrade in 2006.

Most are expecting the Office franchise – which Microsoft says has 500 million users – to retain its dominance in the business world. But Office could be facing the beginning of an erosion of its “must-have” status, according to analysts.

“Every time Microsoft releases a new version of Office, it gets a bump up in revenue,” said Toan Tran, an analyst at Morningstar. “But how big of an upgrade is this? It might have a harder time getting people to update.”

Microsoft will trumpet a list of improvements, such as editing photos in Word, video editing in PowerPoint, collaborating on documents and managing email conversations in new ways.

Office Web Apps

But the most interesting facet is Microsoft’s move into the “cloud” – allowing users to manipulate documents stored on remote servers from anywhere – where Google has been setting the pace.

“It [Microsoft] is coming into our playing field,” said Dave Girouard, the Google executive leading the company’s charge into business applications. “It has conceded that this is the future and now we think our products and services will get a lot more consideration.”

Google says it has picked up 25 million users since launching Docs four years ago. That is only a fraction of Microsoft’s 500 million, but is growing quickly.

“Word and Excel are pretty secure – Excel is embedded in an uncountable number of business processes, so that would be pretty hard to rip out,” said Tran.

But Microsoft faces more pressure in email and calendar programs, the areas most amenable to online and mobile use, where Google already has a strong foothold. “Google has made a lot of inroads there. Microsoft is going to face pressure there over time. It is probably going to have to cut prices to some extent,” said Tran.

That could put the brakes on one of Microsoft’s most formidable profit engines. Microsoft’s business division – which gets 90% of its sales from Office – averages around $2.8 billion profit per quarter. That is 47% of Microsoft’s total profit so far this fiscal year, second only to Microsoft’s core Windows franchise.

Businesses account for the vast majority of that. According to the latest data from tech research firm Forrester, 81% of companies are running Office 2007, compared with only 4% using Google’s online equivalent.

A Forrester poll indicates almost a third of existing Office users plan to upgrade to Office 2010 within 12 months.

Consumers get the chance to buy Office 2010 next month.

It will take at least a year before it is clear whether Microsoft has a winner or whether customers are migrating to online versions and lessening reliance on installed software. “Google is not the threat that it will be once the ‘virtual desktop’ becomes a no-brainer,” said Richard Williams, an analyst at Cross Research. “That’s the time Microsoft really has to worry about.”