This story ran in the print edition of The Seattle Times on June 27, 2011. -Sharon Pian Chan

Corrected version

While word processing on the Web may seem mundane, the competition between Google and Microsoft over Web-based applications is the stuff of high drama. Google protested in federal court when a U.S. cabinet department favored Microsoft. Steve Ballmer has personally visited department officials to court its business. Google's marketing slogan is that companies have "gone Google." Microsoft's retort, "Google gone."

In the second cannonball Microsoft has lobbed against Google's Web apps, Microsoft is expected to start selling Office 365 this week. Ballmer will personally host an event in New York on Tuesday morning.

Office 365 is a cloud version of Word, PowerPoint, Excel, email and other software that Microsoft will sell chiefly to businesses for $6 per person monthly.

The first volley came last year when Microsoft launched Office Web Apps -- free, lightweight Web version of Word, Excel and PowerPoint -- to compete with the free Google Docs.

The new Office 365 will compete with Google Apps, the subscription version of Google Docs the search company sells to small businesses, and increasingly governments and large corporations. Google Apps also includes email and collaboration websites.

"It is the 2010 versions of server (software) Exchange, SharePoint and Lync -- available as a service. It's also a subscription version of Office 2010," said Kurt DelBene, president of Microsoft's Business division. "We think it expands our business. In our traditional software business, we compete for 15 percent of the total IT budget. We think we can go up to four to five times that with Office 365."

His division makes $18.6 billion a year, mostly from selling Office software. Last quarter sales went up 21 percent because of Office 2010, which has sold like gangbusters since it launched last year.

Wins on both sides

Both Microsoft and Google are boasting about large customers they've won. Last week, Google said that McClatchy, which owns The Sacramento Bee and other newspapers, is switching 8,500 workers to Google Apps. Microsoft held news conferences with San Francisco and New York officials when those cities chose Microsoft.

The competition is hot because email services on Google Apps and Office 365 are a gateway to cloud computing. Instead of getting installed on desktop PCs or corporate servers, software and data in cloud computing will be stored on servers run by a cloud company and accessed via the Internet with smartphones, tablets, laptops, PCs and televisions.

When Microsoft Chief Operating Officer Kevin Turner delivered his annual rally speech at Microsoft's Worldwide Partners Conference in July, he said, "The go-do is: Don't let customers get Googled," he said. "In the productivity space they're coming at us guns ablazing. Recently they introduced a ruler in their word processor, an application [feature] that we've had for 14 years."

Turner said it hurt when automaker Jaguar Land Rover chose Google's office software, which he referred to as "the IT equivalent of vinyl seats." Turner is expected to go at Google again on stage when the next Worldwide Partners Conference starts on July 11.

Shan Sinha, group product manager at Google Apps, says he's not worried about Office 365. Google sells the service to companies with more than 10 users for $50 per person annually, below the Office 365 subscription of $72 per year. The Mountain View, Calif., company said 3 million businesses with 30 million users are paying for the service since the company began selling it in 2007.

Microsoft declined to say how many customers it has.

Office 365 is exciting for Google, Sinha said. "It represents the way the world is headed," he said. "It's happening because customers are expecting more out of their technology. They're expecting less complexity, less hassle."

Duking it out in court

Sinha's sunny outlook contrasts with the head-butting Google and Microsoft have engaged in over the past 12 months.

When the Department of the Interior awarded Microsoft a contract for email, Google filed a federal complaint, saying department officials had not fairly considered Google's bid. A federal court ordered the department to re-evaluate the contracts.

The two companies also bickered in multiple public statements over which had a U.S. government security certification under FISMA, the Federal Information Security Management Act.

How small and medium businesses will benefit

The bigger potential market for Microsoft and Google that does not spark news conferences, however, is small and medium businesses.

Office 365 is a new version of Business Productivity Online Services, also known as BPOS, a more limited version Microsoft started selling in 2007. Office 365 has new versions of what was in BPOS and Office Web Apps. For a higher subscription fee, Office 365 subscribers can also add a full version of Office 2010.

With Office 365 and Google Apps, businesses don't have to worry about setting up, maintaining and running in-house servers for email and other software, saving thousands of dollars in the process.

Microsoft's recent email service outages

One concern for Microsoft as Office 365 comes online is that its predecessor, BPOS, has had a couple email outages in recent months.

"Outages are a bad thing," said Bob Coppedge, owner of IT services firm Simplex-IT in Hudson, Ohio. "Am I happy about it? Absolutely not. What I'm more unhappy about -- and this is true of every cloud service I've seen -- is the inefficiency of updating about the outage and updating about the breadth and depth of the outage."

David Mellinger, chief operating officer at Blade Technologies in St. Louis will recommend it to his small and medium business clients. He compared BPOS to Windows Vista, and Office 365 to Windows 7. "It's kind of what happened with the Windows Vista debacle," he said. "With Vista there were always huge issues with it and the Apple commercials. With Windows 7 you knew Microsoft was going to do absolutely everything to make sure it was what people needed and expected it to be."

Update 11:09 a.m.:

Google posted a blog item Monday on why businesses should choose its Apps over Microsoft's Office 365.

Here is a snippet: "Office 365 is built for Microsoft. Apps is built for choice," Shan Singha wrote in the post.

Here is the Google blog post if you want to check out the full marketing spiel.

And here is a link to the marketing around Office 365 from Microsoft.

Information in this article, originally published June 27, 2011, was corrected June 28, 2011. A previous version of this story incorrectly stated that Blade Technologies was based in Ohio. It is based in Missouri.