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Kyle Mcnabb, the Forrester analyst, said: “Microsoft will have to move away from licences, but not overnight. The new players still have to earn trust and there are questions over whether new [SaaS services] will work with the way people work.”

Microsoft’s competitors are slowly gaining traction. Underscoring its ambitions, Google last week forged a tie-up with Capgemini, the IT outsourcer, which will make its Apps products available on one million corporate desktops.

But Google needed a boost. It says that Premier Apps, which users access over the internet and which costs $50 (£25) a year per user, has been signing up more than 1,000 small businesses a day and has been adopted by more than 100,000 firms.

Microsoft, meanwhile, can point an estimated 500 million users of Office. The latest version, Office 2007 – launched, somewhat confusingly, in November 2006 – has outpaced Office 2003 in terms of initial sales, the company claims. Since April, it has sold 71 million Office 2007 licences.

Microsoft is not ignoring the shifting environment. But it isn’t buying into the “end of software” line either.

“We think the future is going to be software plus services,” Darren Strange, senior product manager for Microsoft Office, said. “There are some things which thick client [Microsoft’s favoured model, where PCs are linked to a central server but can operate independently] is better at than [web-based services] – offline use being a big one.

“You also can’t create the richness of an application like Word through a thin client [where a user's PC is effectively a dumb terminal and the processing of data is done elsewhere]”.

Mr Mcnabb said that the software plus services model “is credible”. Companies such as Google “are yet to really understand what big businesses need,” he added, though web-based services do offer firms the ability to include more employees – factory floor workers, for instance – under their “IT umbrellas” because of their flexibility and ease of deployment.

Microsoft executives also point to the strategic direction for their company envisaged by Ray Ozzie, the group’s chief software architect – Bill Gates’s old job title. Tellingly, Mr Ozzie, the inventor of Lotus Notes, was brought to Microsoft when the software giant acquired his company, Groove Networks, which specialises in “collaboration software for ad-hoc workgroups”, in 2005.

Microsoft wasted no time in stressing that Groove's "virtual office" software would be incorporated into its own Office line.

“Ray shapes the way we go,” Mr Strange said. “Our smartest people are looking at mash-ups [where several online tools are fused together to create new ones] and web 2.0-type applications [which focus on online tools that allow users to collaborate and share information]”.

Analysts agree that Mr Ozzie is key to Microsoft's future, but warn against anybody underestimating the task before him. Mr Mcnabb said: “Ray Ozzie is instrumental, but he has a tough job. Microsoft is a behemoth and he has to get all the arms pointing in one direction.”

Mr Strange also concedes that Microsoft is not about to turn on a sixpence – and greater agility is one of the capabilities often cited by pure SaaS players such as Salesforce.com. “When you have 500 million customers using a product you have to look hard at how you introduce change,” he says.

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