Microsoft has opened up its hosted version of SharePoint and Exchange to medium-sized and small companies, as it tries to take advantage of the demand for software as a service.

Now, businesses with 5,000 or fewer users can sign up for the beta of a hosted version of SharePoint, the collaboration software from Microsoft, as well as Exchange. Previously, the hosted versions were only available to larger companies.

General availability of the subscription service is expected by the end of the year, said Bill Gates, chairman of Microsoft, speaking at the annual SharePoint conference in Seattle on Monday. “We’re moving to embrace customers of all sizes,” he said.

Microsoft hopes to test how well it is able to meet the needs of smaller companies, particularly those that may not have an expert IT department, with the expanded beta. “We want to scale this all the way down so that literally you don’t have to have an IT capability,” Gates said.

The wider availability of the service puts Microsoft in competition with Google, which just last week launched Google Sites, a hosted collaboration and communication service. “Microsoft's SaaS investment is both an offensive move to capture operational revenue (in addition to the license fees it now collects), and a defensive measure to combat potential incursions from suppliers such as Google,” wrote Matt Cain, a Gartner analyst, in a research note about the news.

Gates downplayed the competition with Google. “They really don’t have the richness and responsiveness, and you can see that relative to the success they’ve had there,” said Gates. He suggested that Google tends to create a big buzz with the introduction of new services but fails to maintain interest. “To be frank, the day they announce them is their best day,” he said.

Still, Microsoft will face challenges, Gartner said. “While it runs one of the largest public portal sites in the industry, providing large-scale SaaS services for business requires significant expertise in high availability, security, multitenant architectures, network topologies and problem resolution,” Cain wrote. However, Microsoft will likely attract small and medium-sized businesses to its hosted offering. By 2012, Gartner expects that 20 percent of enterprise e-mail seats will use hosted options, compared to 1 percent in 2007.