Google has won its highest-profile customer in its battle with Microsoft to provide e-mail and other internet services to businesses.

Los Angeles City Council has approved a multimillion-dollar proposal to use Google’s range of office products for its 30,000 workers.

The deal could be a landmark for the search giant as it seeks to wrest market share for office software from Microsoft and IBM. It introduced Google Apps, which includes e-mail, word processing and spreadsheet tools, three years ago.

The technology is positioned as a rival to Microsoft’s dominant Office suite of software, which helped to deliver $2.9 billion (£1.8 billion) in revenue for the company’s business division in the last quarter.

The city council voted unanimously for the $7.2 million deal to replace many of its computer systems with the Google Apps services, choosing this offer over competing bids from Microsoft and more than a dozen other technology firms eager to win America’s second-largest city as a client.

The vote came amid a push by Google to market its “cloud computing” Apps services — applications that run remotely on the company’s own servers, instead of users’ desktop machines — to governments and large, security-conscious corporations.

“In our view, this can be a watershed agreement,” Dave Girouard, president of Google’s business services division, said. “There’s a lot of cities and counties around the state and around the nation who are watching this.”

Google has said that more than two million businesses now use its online office software and the company is pushing hard to lure customers away from Microsoft and IBM products.

This month it launched a rare global advertising campaign urging companies to “Go Google” and trumpeted its deal with Rentokil Initial to deploy Google Apps to all its 35,000 employees across 50 countries. Larger businesses pay $50 per year, per user for Apps, while firms with fewer than 50 employees get the software for nothing.

Cloud-based services can offer cost and maintenance savings over traditional software, although recent high-profile outages, including one suffered by Google’s Gmail last month, have raised questions about the reliability of online software for business users.

The shift towards cloud computing could be troublesome for Microsoft, which has built its business on operating systems and office software that run on desktop machines, Rob Enderle, a technology analyst, said. “Losing something of this size has to be really painful. It’s not the death knell for them, but it’s a big red flag.”

For Google, winning the Los Angeles contract is a chance to demonstrate its ability to handle data for a large number of users securely — something it is sure to highlight as it seeks more big clients.

Security concerns over Google’s services prompted Los Angeles City Council to make the new deal contingent on Computer Sciences, the contractor, agreeing to pay a preset penalty should a security breach occur.

Microsoft has responded to the trend for “cloud computing” by launching versions of some of its Office applications online.

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