This article certainly points to an interesting change of pace in Redmond when it comes to the ongoing battle for Web 2.0 dominance. While Microsoft is certainly turning the ship to open fire on Google and the myriad of the new .com startups, Microsoft still remains at disadvantage because it has a lot more to lose than to gain at least initially. This new development of making Works available online for free is certainly interesting, considering that the cost of $50 (to Microsoft, “retail”) could be easilly made up by anyone actually using the application online:

SEATTLE (Reuters) – Microsoft Corp. said on Thursday it may offer a free, advertising-supported version of its basic word processing and spreadsheet software, in an apparent bid to fend off a nascent challenge from Google Inc. in the business software market.

Microsoft, which dominates the market for desktop computer software through its Windows and Office franchises, has long resisted offering its software online.

But it faces a growing pack of Web-based competitors — led by Google — that is offering similar technology for free with a business model that makes money off advertising.

The world’s largest software maker is now mulling how it can move Microsoft Works, a basic suite of business software that often comes preloaded on inexpensive consumer PCs, onto the Web as part of its growing stable of free online services.

Microsoft continues to roll out new online services under the Windows Live brand and it started testing Office Live, a software for small businesses to create e-mail accounts, Web sites and collaborate on projects.

Alan Yates, general manager of Microsoft Information Worker Business Strategy, said the company will consider many options to woo entry-level users.

“We’re also thinking about how we might take advantage of new business models like advertising and other payment models, as well as new forms of distribution,” said Yates.

Revenue from software licenses for Office and the Windows operating system accounts for a bulk of Microsoft revenues.

The challenge for Microsoft will be to make sure a free or, possibly, a subscription-supported version of Works won’t hurt sales of its dominant Office software, which accounted for a quarter of the company’s $44 billion in sales last year.

Microsoft expects its new version of Office, due out in early 2007, to spur another round of demand. Office includes Outlook e-mail, PowerPoint presentation software, Excel spreadsheets and Microsoft Word.

Redmond, Washington-based Microsoft sells the latest version of Works, which includes a calendar, word processor, spreadsheets, Web Browser and e-mail, for $50.

Last month, Google said it created a free software platform to run a set of business software programs including e-mail, scheduling and communications. A paid, premium version will be available later this year with an ad-free option.

At the time, Google also said its online spreadsheet and word processing software were candidates for bundling into its business software platform.

Google acquired word processing Web site Writely.com in March and began testing Google Spreadsheets, which allows users to create, store and share spreadsheets on the Internet, in June.

So here is the Web 2.0 scale as I like to see it. A year ago right about this time Microsoft was almost down for the count. It just got smacked by the steel chair and got the elbow drop from the top rope across the ring. Google released Gmail and speculation of Google Office was mounting. Microsoft, dazed and confused, was spending live.com $$$ on creating online/sharing integration for its upcoming Office 2007 suite knowing full well that most corporate (“big money”) users have privacy policies restricting the sharing and uploading of files outside of corporate firewalls.

So here we are a year later and boy does time make a difference. Google has released one uninteresting application after another unexciting bundle and is slowly but surely losing both trust and fan girl image that it once had. They are the Back Street Boys now, whether they like that or not. Fan girls are over on myspace, on Youtube, blogging, vlogging… and Google has to put a finishing move on Microsoft, which as in all wrestling, appears to be Hulking up through some miraculous burst of energy.

Make no mistake, Microsoft is still very bloody and the greasy hair is looking pretty bad. It has to convince already frugal corporate gatekeepers that the productivity from its new OS and Office suite will displace the additional costs of retraining and retooling literally every non-ITPRO worker (you know the kind, that have printing instructions glued to the side of the monitor) and change the way they have worked and viewed their desktops for close to a decade.

The funny thing? Even though Microsoft is no stronger a year later, Google is by comparison weaker and has virtually everyone else after them, at least in the web 2.0 world. And that, after all, is what we’re lead to believe is the future… The funny thing is that the one leading that notion is Google themselves.

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