It has a lot of work to do yet before an online suite like the newly introduced Google Apps Premier Edition can seriously challenge the solid position of Microsoft Office in enterprises. But only time and steady development and refinement of the applications will determine whether an on-demand, Web-based application suit can overturn the nearly 25-year dominance of packaged software.
Then there is the question of whether Microsoft itself will choose to make a radical transition and develop the "Office Live" distribution model until it turns itself into a true software-as-a-service company that sells most of its software as Web-based applications.
It might be the logical move for Microsoft to make. But Microsoft would also have to transform its corporate structure. The current pricing model of software as a service greatly undercuts the price of most comparable on-premise packaged software because the cost of deploying and maintaining the software is sharply lower.
Microsoft would have to learn to prosper in a world where instead of selling packaged software for $250 to $500 a copy, it would need to make a profit selling software online for $50 to $150 per user.
Microsoft might have to endure a significant downsizing before it could survive on such a pricing model. But that is exactly the challenge that Microsoft is facing in the long run.
Its not going to happen overnight. Large enterprises are not going to shift to Google Apps just because it is a cheaper and less complicated alternative. These companies already have a lot invested in employee training, as well as in data and documents all stored in Microsoft Office formats. They will think long and hard before they would even seriously consider switching to an online office suite.
The main barrier to adoption of online application services in this era of the Sarbanes-Oxley Act and government-mandated compliance with data integrity and security regulation is that enterprises simply cant afford to have their data managed off-site by a third party.
Data stored on Googles servers isnt encrypted, and it cant offer any iron-clad guarantee that the data wont be compromised by an external hacker or an internal administrator. This is a difficult but not insoluble problem that SAAS companies will have to fix before large enterprises will buy into it.
But there is at least one large and growing enterprise that isnt going to let these concerns hold it back from a complete switch from Microsoft Office to Google Apps.
To show its commitment to SAAS and to support a fellow purveyor of on-demand applications, Salesforce.com, which markets its flagship online customer relationship management application, intends to switch entirely from Microsoft Office to Google Apps.
We dont plan to be buying Microsoft office or exchange any more," said Salesforce.com CEO Marc Benioff.
"We think it will take about a year for us to make the entire move," Benioff said. "We already have teams who have moved off of Microsofts products