redmond, wash. -- For decades, Microsoft Corp. has used its smarts, muscle and the occasional illegal maneuver to beat back major competitors and become the world's most valuable technology company.
But the software giant has seldom dealt with opponents as strong as those it now faces. And it's fighting with an arm tied behind its back, handicapped by the European Union's regulation of its business tactics.
The threat posed by Google Inc. and others distributing cheap or free alternatives to some of Microsoft's bread-and-butter products has shaken the Redmond, Wash.-based company like nothing since the Internet explosion a dozen years ago.
That's because the Web is fast becoming the medium of choice for new technologies in the same way that Microsoft-powered personal computers displaced the massive mainframe machines sold by the likes of IBM Corp.
As a result, the Office suite of e-mail, word-processing and other basic tools is finally becoming vulnerable to displacement by programs delivered over the Internet. If it falls, Windows could be next.
"Microsoft's nightmare scenario is a relevance shift to the Web, and it's happening. It's a natural progression," said Joe Wilcox, editor of the Internet newsletter Microsoft Watch. "Google is to Microsoft as Microsoft was to IBM."
Microsoft is fighting back. Today, for example, it is making available a set of what it calls Microsoft Online Services aimed at businesses with more than 5,000 employees. Included is a Web-based version of Outlook e-mail that's administered by Microsoft, which declined to provide prices.
But Google has already been offering e-mail and other services to the businesses that are Microsoft's best customers. Google charges just $50 a person annually for a version with round-the-clock tech support. That's roughly a fifth as much as Microsoft charges for regular corporate e-mail alone, but Google says it's making money on it.
The Mountain View, Calif., search giant is a long way from doing serious harm to Microsoft's near-monopoly Office franchise.
Microsoft is still alarmed. At meetings here for investors in July and employees in September, its executives stressed that they were shifting the entire company to focus on selling both traditional software and "software as a service" -- that is, using the Internet to deliver what people need, when they need it.
