Microsoft Corp. is testing a system called Windows Live Folders that gives computer users up to 500 megabytes of online storage for their documents, music, photos and video.

Microsoft has made an early "beta" or test version of the web-based file storage system available to 5,000 people in its latest effort to bulk up its online offerings and fend off challenges from Google Inc. The beta will be widely available later this summer.

The service gives users who e-mail documents between home and work computers an alternative way to access their files on the go. Users can choose to keep files private, share them with people they know or allow anyone on the web to view them.

Rumours and leaked details have circulated for more than a year that "Live Drive" was in the works. Microsoft, however, is officially calling its new service Windows Live Folders, at least for now — it'll get another name change when the final version launches, the company said.

Microsoft plays catchup

Time Warner Inc.'s AOL already offers 5 gigabytes of free online storage — 10 times more than Microsoft's offering — through its Xdrive unit. Yahoo Inc. recently began offering unlimited storage for e-mail, while Google's Gmail offers nearly 3GB and Microsoft gives 2GB for e-mail.

While the idea of online storage isn't new, Windows Live Folders is an indication of Microsoft's growing focus on providing online services. The proliferation of digital media such as photos and music has increased the demand for storage, while server-space costs have been declining.

Google also has launched free, web-based word processing, spreadsheet and presentation software to compete with Microsoft's flagship Office suite.

Brian Hall, general manager of Windows Live, said Microsoft is working on making its offerings more coherent and interconnected. But he made no commitments on a web version of Microsoft Word or other desktop programs targeted by Google.

"We have nothing to announce right now — but we are the productivity leaders today and certainly will continue to keep providing the best solutions for people," Hall said. "If that's a scenario people are excited about, we're going to [do it]."