Google Inc.'s move to provide office productivity software as an online service has generated a lot of attention for the company, renewing speculation about whether the future of the office is really online.

As the Mountain View, Calif. company increasingly diversifies its offerings, it is venturing into territory traditionally held by software companies such as Microsoft Corp. with its Office suite, Novell Inc.'s SUSE Linux Enterprise Desktop productivity applications and IBM Corp.'s Lotus software.

The online search giant's latest offering, Google Apps – which comes in a free standard version and a premium $50 US per year bundle – has sparked speculation that the company aims to become the backbone of both the consumer and enterprise computing.

Online software forecast to grow

"Google continues to release a breadth of applications, from document creation to spreadsheets," said David Senf of market research firm IDC Canada.

"They're saying they're not taking on Microsoft directly, but we've heard that before," the manager of software research told CBC News Online, pointing to offerings by Novell, Sun Microsystems with its free StarOffice and collaboration on the free OpenOffice productivity suite.

And they're not the only company in the market to provide software as a service, Senf said: Salesforce.com Inc. already offers a set of service-based applications starting at $65 US per user per month.

IDC forecasts software as a service will grow by 17 per cent in 2007 to reach just under $3 billion US in worldwide revenue. The sector as a whole accounts for less than three per cent of the total market for software applications.

But the potential is drawing the attention of existing players, too, he noted.

"If you're a small company and you don't have infrastructure and administrators and money, software as a service makes sense," Senf said.

That's part of the reason that companies such as Microsoft are also getting into the market, he said.

Desktop will stay in the picture: Microsoft

Blake Irving, Microsoft Canada's vice-president for Windows Live, says the future of software is both online and on the desktop. (Microsoft)

"I think it's getting more interesting, not more crowded," said Blake Irving, corporate vice-president for Windows Live at Microsoft Canada, gently dismissing the notion that Google's entry poses a threat to Microsoft.

The company has its own online productivity offerings available through Live.com, such as its Office Live website tools for businesses and its Live Writer word processing program.

"How you define software as a service is important. Some people hear that and believe it means you serve everything on a server with no intelligence on the desktop," Irving told CBC News Online. "We don't think that the world morphs to everything online."

He said Microsoft's vision of the future of computing envisions overlapping uses for desktop software and online or network services appropriate to users and their circumstances.

The compelling argument for online productivity services is to have everything a user needs – including data files such as documents and spreadsheets as well as e-mail –available to them anytime, anywhere, he said.

"Your computing experience – regardless of where you are – will be uniquely yours. All the things important to you will follow you around," he said. "Some of it's on a desktop, some of it's in a cloud."

Demand limited so far

The cloud metaphor for the internet and online networks may be a nice idea but software as a service has not made much of a mark, according to Matt Rosoff, an analyst with Kirkland, Wash. consultancy Directions on Microsoft said.

"We've been hearing about it for 10 years now, and more seriously for the last four to five years, but it doesn't appear to have much of any impact in Microsoft," Rosoff told CBC News Online.

Pointing to the world's largest software maker's best-selling Office productivity suite, he noted "most people don't use all of the features."

"I'm not 100 per cent convinced that a hosted productivity suite is something we are clamouring for. From a business perspective it makes sense, but if your network is down, what happens to your data?"

That is the kind of problem players in the online software space will have to overcome before they can persuade people to move to a service-driven productivity tools over a network, he said.

"Google has nothing to lose by offering services. Their business is really selling ads on third-party sites," Rosoff noted.

Contest remains open

In contrast, Microsoft has plenty to lose to competitors – its Office suite is the company's No. 2 revenue generator after its Windows operating system, which Rosoff said is the reason Irving's comment that software will eventually be a hybrid of desktop and network tools makes sense for the company.

"That's a very Microsoft answer," Rosoff said, remarking that the company's dominant position among enterprise clients gives them an incentive to do what they can to hold on to the top spot.

"Microsoft has a hard time adding features to Office. They see services as a way to add functionality," he said, maintaining that the future of software as a service and the prospect of it becoming widespread remain unclear.

IDC Canada's David Senf agreed.

"I'm not bullish on it," Senf said. "Do I think over time it will become important? Absolutely. But the desktop is going to continue on for years to come."

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