The tanks on Microsoft’s lawn are growing in number and firepower.

Never mind the brutal verdict handed out against Microsoft by Europe's competition regulator on Monday. This week three rivals – IBM, Google and Yahoo! – gave notice of their intentions to compete head-on with Microsoft Office, recently the software giant’s biggest earner by far. The stalwart suite of office tools, which includes Word and Excel, accounted for revenues of $4.6 billion – a third of Microsoft total sales – in the company’s most recently reported quarter.

Gallingly for Microsoft, given its dependence on Office licence fees, much of the threat comes from software given away gratis over the internet – a dramatic departure from its licence-based model, in which software is hosted on a user's desktop machine.

IBM this week unveiled Lotus Symphony, a suite of free desktop applications that includes document, spreadsheet and presentation software.

Hours earlier, the newly acquisitive Yahoo! announced that it had bought Zimbra, a start-up that specialises in online e-mail tools similar to Microsoft Exchange and Outlook – key parts of the Office family – for $350 million (£174 million).

At the same time, on the paid-for-software front, Google, the search giant widely regarded as the chief threat to Microsoft’s dominance, unveiled Google Presentations, an online version of PowerPoint, the Microsoft presentations tool known to millions of executives around the globe.

Microsoft is in danger of loosing the Office licence fees it has milked for nearly two decades, some suggest, as customers opt for alternative subscription-based services that are hosted by providers. Its business model – built around the PC – will not survive the internet age, they argue.

"Recent moves from Google and Yahoo! prove that the Internet is the only way forward for business,” said Lindsey Armstrong, co-president of Salesforce.com in Europe, one of the leaders of a new generation of internet-enabled “software as a service” (SaaS) companies.

“Companies don't want to buy and maintain the stack of software that the likes of Microsoft force on them.

“They want innovation, not infrastructure – why bother with costly implementations when you can subscribe to business applications in the same way that you do for other utilities like water and electricity? It’s the end of software – the tides are changing and Microsoft is losing its hold.”

Those sniping at Microsoft may have a point. Google’s new tool, for instance, will be wrapped into Google’s Premier Apps, a bundle of Office-type applications that already includes an online word processor, spreadsheet and e-mail, which compete with Microsoft Word, Excel and Outlook, respectively.

“This constitutes a real threat to Microsoft’s business model,” Tom Austin, of Gartner, the technology analysts, told The Times ahead of the Premier Apps launch earlier this year. “Eventually, it will have to switch from limited-use licences to software as a service. That will require a fundamental re-engineering.”

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