By Maggie Shiels
Technology reporter, BBC News, Silicon Valley
Office 2010 will enhance video and picture capabilities in PowerPoint
Microsoft has fired its latest salvo at Google, announcing a free web-based version of its Office software.
Office 2010 will include lightweight versions of Word, Excel, PowerPoint and OneNote when it ships next year.
The new web offering will compete with Google's free online Docs suite launched three years ago.
Last week Google took aim at Windows with news of a free operating system while in June Microsoft introduced a new search engine called Bing.
"We believe the web has a lot to offer in terms of connectivity," Microsoft's group product manager for Office told the BBC.
"We have over a half a billion customers worldwide and what we hear from them is that they really want the power of the web without compromise. They want collaboration without compromise.
"And what they tell us today is that going to the web often means they sacrifice fidelity, functionality and the quality of the content they care about. We knew that if and when we were ever going to bring applications into a web environment, we needed to do the hard work first because we hold such a high bar," said Mr Bryant.
Microsoft said that 400 million customers who were Windows Live consumers would have access to the Office web applications at no cost.
At a conference for business partners in New Orleans, Microsoft announced an early release of web apps to thousands of testers later this year.
At the end of the year the company expects to release a proper public beta for the software and ship a final version off to PC makers in the first half of 2010.
Analysts have mostly given the thumbs-up to Microsoft for moving some of its applications to the web, even if it might cost them dearly.
Excel spreadsheets can now run in the browser
The Wall Street Journal has estimated that offering free online software could "put at risk as much at $4bn (£2.46bn) in revenue".
One analyst told the paper that despite such losses, it could be a canny move.
"Making sure people are still using Microsoft products is more important" in the short term than risking revenue, explained Piper Jaffray analyst Gene Munster.
"They need to keep people using Office," he said.
"Microsoft is finally making the conversion through the web-based world. First, we saw that through Bing. Now we are seeing that through Office, " said Jeffries & Co analyst Katherine Egbert.
"The software giant has woken up," wrote Emil Protalinksi of online blog Ars Technica.
"It is promising to know that such a traditional software company is responding to the 'threat of the cloud' to its core business by embracing it."
Investors appeared to like Microsoft's move and boosted shares by almost 3.8% higher to close at $23.23 (£14.33).
Microsoft's announcement is being seen as the latest move in a tit-for-tat rivalry between two tech giants as it and Google increasingly make efforts to encroach on one another's turf.
When Google announced its Chrome operating system last week, the blogosphere watched and waited for Microsoft to react.
Chrome OS is seen as a direct challenge to market leader Windows
Mr Bryant stuck to the company line when he spoke to BBC News.
"I haven't seen the product. I think it's not a trivial engineering investment to go and build an operating system," he said. "Of course it is interesting and there is a lot of talk but until we see the product, it's hard to say what kind of impact it will have.
"We can't afford to get wrapped up in hype or buzz or noise because really our customers depend on us every single day."
Microsoft's business software division, which includes Office, made $9.3 bn (£5.74bn) in profit from $14.3 bn(£8.82bn) in sales during the first three-quarters of its 2009 fiscal year.