By Bill Rigby
NEW YORK (Reuters) - MICROSOFT (MSFT.NQ)Corp launched an updated version of its Office software on Wednesday, aiming to keep its grip on the hugely profitable business application market while countering the challenge of free online alternatives from GOOGLE (GOOG.NQ)Inc.
The world's largest software company is upgrading its popular Word, Excel, Outlook and PowerPoint applications and rolling out its own online versions to keep up with the new class of mobile, Web-connected users that has emerged since the last upgrade in 2006.
Microsoft announced several improvements on Wednesday, such as editing photos in Word, using video in PowerPoint, collaborating on documents and managing e-mail conversations in new ways.
But the biggest change 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.
Corporate buyers of Office will have immediate access to Microsoft Office Web Apps, online versions of Word, PowerPoint and Excel programs usable on Internet-connected phones and PCs.
That marks a major shift for the Windows franchise, with 500 million users according to Microsoft, which has so far relied on software installed on PCs.
It brings Microsoft into direct competition with Google Docs, stripped down versions of Microsoft's core programs, which are available over the Internet with no need to download software. They are free for personal users and $50-per-user per year for companies. Google says it has picked up 25 million users since launching Docs almost four years ago.
According to the latest data from tech research firm Forrester, 81 percent of companies are running Office 2007, compared with only 4 percent 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.
After a successful public test period, "8.6 million people are already using Office 2010," said Stephen Elop, head of Microsoft's Business Division, at a launch event in New York.
But some analysts worry that by offering its own online versions, whether free or as an add-on for existing customers, will cut margins at one of Microsoft's two great profit engines.
Microsoft's business division, which gets 90 percent of its sales from Office, averages around $2.8 billion profit per quarter. That is 47 percent of Microsoft's total profit so far this fiscal year, second only to Microsoft's core Windows operating system franchise.
Ordinary customers will be able to get the new Office and access Office Web Apps from next month. Buying the software off the shelf will cost from around $100 to $500, depending on the level of features.
Shares of Microsoft were up 1.6 percent to $29.34 in noon trading on Nasdaq.
(Reporting by Bill Rigby; Editing by Lisa Von Ahn and Tim Dobbyn)
