Microsoft says Office has steadily gained hosted service components for years, and it believes this combination with the core PC software is the right approach. Beyond native Office services, Office Live, with about 250,000 subscribers, offers a set of hosted services for small businesses, like website creation and hosting, while Office Online, with 70 million monthly unique users, offers Office online resources. "We’re very committed to both [hosted] services and [PC] software," said Kirk Gregersen, director with Microsoft’s Office team. On the issue of Office’s price, Gregersen pointed out that Office customers have had less expensive alternatives, even free ones, for years, but that when deciding to buy Office, they have traditionally taken other factors into account beyond cost.

Still, some Office users, like Prudential Preferred Properties in Chicago, feel the price sting, which for this real estate firm is between $350 and $400 per license. "We have instances in which the Office license was more expensive than the PC it’s on," said Camden Daily, Prudential’s technology director.

Google Apps found its way into Prudential, which has 450 employees, as the salvation for an outsourced e-mail service that constantly malfunctioned. Prudential has been using the free Standard version, but Daily said the Gmail service alone is worth the price of the Premier edition, which the company will adopt. "Everything on top of that is just a bonus," he said. Prudential will evaluate carefully how Docs & Spreadsheets compares with Excel and Word.

Google acknowledges that Google Apps doesn’t match the broad set of features currently in Office, which has an installed base of about 450 million users. Google Apps needs a presentation application like Office’s PowerPoint, and to boost its support for offline work beyond its basic capabilities to import and export files from Docs & Spreadsheets, analysts say.

Still, Microsoft must better articulate the value of Office Live, which lacks hosted versions of core Office applications like Word and Excel, said analyst Rebecca Wettemann of Nucleus Research. With the improvements in Internet connectivity, it’s natural for organizations to evaluate hosted suites like Google Apps as alternatives to packaged software like Office, she said. In a recent survey, Nucleus found that 51 percent of organizations use some on-demand applications for things like CRM, project management, content management, e-commerce and collaboration, Wettemann said.

Those that sign up for Google’s Premier edition will get 10GB of e-mail storage per user, compared to 2GB in the Standard edition, a 99.9 percent uptime guarantee and phone support for IT administrators. It also includes application program interfaces to integrate the suite with business applications and data.