Google vs. Microsoft: How many $50 Apps Premier licenses does it take to equal $12B in annual sales?

Start the Google vs. Microsoft organ grinder again, because the search giant is going after the software king's most lucrative market: The desktop.

After years of competing on the fringes of Microsoft's desktop software business, Google is announcing today a new premier edition of Google Apps for Your Domain (now just Google Apps) that includes docs & spreadsheets, Gmail, Google Calendar, Google Talk and 10 GB of storage. Also included: A 99.9% service level agreement (SLA) for Gmail uptime, and 24/7 phone support.

Google Apps Premier costs $50 per user, a price far below any Microsoft offerings, including the $225 per person per annum cost of using Microsoft Exchange and the $499 cost of a standalone edition of Office Professional Edition. Google Apps Premier does not contain any presentation software, although Google is rumored to be working on a Powerpoint clone called Presently.

Perhaps most vexing to Microsoft: Each of Google's productivity apps is capable of importing and exporting Microsoft Office formats such as .doc and .xls.

Google Apps Premier is the third version of the package, which was originally announced in August. At that time, Google was roundly criticized for trying to offer business class software without any SLAs or tech support, a problem since addressed.

But for all the hullabaloo in the blogosphere today, don't expect any immediate change in the marketplace. Google will need to prove that both its phone support and its security are up to spec first. And as we've seen lately, even a company like Google is prone to serious security flaws.

Not to mention that Microsoft's $12 billion software business is an entrenched war machine not easily trifled with.

Devil's advocate: Most of that $12B comes from a handful of huge companies, and Google just signed up two of them -- General Electric Co. and Procter & Gamble -- for Google Apps Premier.

Counterargument: Microsoft already tried a hosted strategy with Hailstorm back in 2001. It flopped, despite the big name partners.

At the end of the day, even if Google Apps Premier is wildy successful -- let's say they sell a million licenses -- that's still only $50M gross, which will have a neglibie impact on the bottom line. I've said it before and I'll say it again: Everything in service of advertising.

Right now, Google is getting a lot of attention for this, but mostly because Microsoft is moving so slowly in the space. Once Microsoft gets its act together -- they've got to manage their cash cow carefully -- the real competition will begin.