Does a Web Office hurt Google or MSFT?

So Microsoft seems to have finally woken up and decided to get serious about the Web — or at least semi-serious — by rolling out a cloud-computing platform called Azure and announcing the imminent arrival of Web-ized versions of its Office applications (my favourite response to these announcements came in a Twitter message from Sarah Perez of Read/Write Web). Obviously, the Web Office news is a shot across the bow of Google and its Google Docs — Microsoft is even using mostly Ajax just like Google, instead of its Flash-style Silverlight technology. But who does the rollout of a Web Office hurt Google more, or does it hurt Microsoft itself?

I don’t know the answer to that question, but I still think it’s worth asking. No doubt many users of Google Docs will shift to Microsoft’s version, in part because it will make integration with their existing corporate systems easier, or because their employers will make its use mandatory. Others may find that Microsoft’s Web apps offer better compatibility with regular Office programs (something that Google Docs still isn’t that good at, at least when it comes to advanced page layout and that sort of thing). But what about the competition between Microsoft’s Web Office and the real Office?

I would imagine that Microsoft is going to try its best to make Web Office just useful enough to entice people away from Google, but not nearly nice enough to tempt them to drop the regular installed version of Office. But no matter how hard it tries, there are likely to be small or medium-sized companies that decide it’s just as good to use the Web version as it is to pay $300 or whatever per seat to get an authorized copy of the desktop software. That’s going to be money right out of Microsoft’s pocket, since Office generates truckloads of cash for the software behemoth.

Maybe Microsoft will be able to manage the process so that it doesn’t cannibalize its Office franchise too much, or maybe it will err on the side of crippling the Web Office so that it doesn’t harm the installed software versions. But either way, that’s a tricky balance to strike.

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