Google will launch an assault on one of Microsoft’s biggest earners today when it unveils its first suite of paid-for office tools.

For $50 (£26) a year per user, Google Apps Premier Edition will offer corporate customers a bundle of web-based applications including e-mail, a word processor and a spreadsheet. It will compete with Microsoft’s Office, which includes the software stalwarts Word and Excel.

A Microsoft spokesman played down the threat, saying that online services such as Google’s were “not alone in altering today's technology industry”. He added: “Productivity applications [such as Office] represent a very competitive space in which more than 450 million users around the world have consistently chosen Microsoft.”

Microsoft’s Business Division, which includes Office, accounted for $3.5 billion of the group’s revenues of $12.5 billion in the latest reported quarter, making it the largest source of sales.

Google Apps: Office-lite and a built-in wiki

Like its other products, Google's online word processor is simply laid out, intuitive, and easy to use

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However, industry insiders say that Google has been quietly preparing for months to tap Microsoft’s cash cow. Keen to supplement its lucrative search business, Google has built massive data-storage plants, thought to be years ahead of those so far developed by Microsoft and IBM.

It is now using this “cloud” to host software and data. A user’s PC effectively becomes simply a “dumb terminal”, used only to access it via the internet.

Tom Austin, of Gartner, the technology analysts, said: “This constitutes a real threat to Microsoft’s business model. Eventually, it will have to switch from limited-use licences to software as a service. That will require a fundamental re-engineering.”

Despite investing heavily in Office 2007, which was released earlier this month and which, like its predecessors, is anchored firmly to the PC, Microsoft has earmarked $2 billion to develop its own data centres.

The company added that it is now partnering other businesses “to capitalise on emerging services, such as advertising-based software, subscription or on-demand software”.

However, Google enjoys a significant lead, with most of the Premier Edition components already available free. From today, for the first time, it will charge for “white label” tools that carry its customers’ brands, so that e-mail addresses can be in the name of the client company.

It will also provide support and guaranteed service levels. Google is offering a contract that stipulates that the service must be available 99.9 per cent of the time. It will offer each user 10 gigabytes of storage and support email on RIM’s popular handheld BlackBerry device.

Procter & Gamble, the drugs group, has signed up to the Google offering, while General Electric, the American conglomerate, is trialling the system.

Google added that its own 10,000 employees have been using its system for several months, although as recently as October most of them were using Microsoft’s Outlook e-mail service. Robert Whiteside, head of enterprise services at Google UK, said: “We have been eating our own dogfood.”

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