Everyone predicted Microsoft Corp. wouldn't take long to fire back against Google Inc.'s latest foray into its home turf.
It took less than a week.
On Monday, Microsoft said it would offer a free version of its popular Office software suite that would run on the Internet.
The Redmond, Wash., company didn't mention its archrival by name, but analysts saw Monday's move as a strategy by Microsoft to protect one of its most profitable businesses against Google, which already dominates the Internet search market.
The Web-based version of the Office suite will be available next year.
"Microsoft was forced to provide a free product" as an answer to Google Docs, a suite of free, browser-based document and spreadsheet editing software, said Sheri McLeish, an analyst with Forrester Research. "It's a very competitive market out there, and this was Microsoft's opportunity to one-up Google by offering a much better product."
The announcement, made at Microsoft's developers conference in New Orleans, is the latest tit-for-tat in an intense competition between the two technology giants.
The Mountain View, Calif., search giant said last week that it would develop an operating system designed to attract users away from personal computers, where Microsoft is ubiquitous. Google's Chrome OS and software would run on the Internet, where Google has a commanding share of the Web audience.
Last month Microsoft released Bing, its answer to Google's popular search engine.
By giving away versions of its Office software, Microsoft risks cannibalizing one of its most profitable products. The company's business software division, which includes Office, made $9.3 billion in profit from $14.3 billion in sales during the first three quarters of its 2009 fiscal year. The unit also has revenue from other software applications and services such as Microsoft Exchange, but the bulk of its sales comes from Office, which includes the Word and Excel applications.
About 80% of companies recently surveyed by Forrester use Microsoft's Office. Less than 8% use other document editing software, including IBM Corp.'s Lotus Symphony, Sun Microsystems Inc.'s StarOffice and Google Docs.
For Microsoft, the imperative is to maintain its dominance, according to Melissa Webster, an analyst with IDC. She said a recent survey found that nearly everyone who used Web-based document editing software such as Google Docs also used Microsoft Office.
Many, for example, create a document using Excel, then upload it to the Web to share with colleagues, who may read and edit the spreadsheet using a Web-based program such as Zoho Sheet or Google Docs.
"Web-based tools are not taking share away from Microsoft's desktop Office suite," Webster said. "But to the extent that these products are complementary, Microsoft needs to get in the game. They risk losing users as people get more comfortable using Web-based tools. And they risk losing their edge."
Microsoft's group product manager for Office, Chris Bryant, said its customers were increasingly using the Web to share and edit documents.
"It's something our users have said they'd like," Bryant said. "Customers are telling us they expect to use the Web-based applications as companions to their desktop software."
Bryant declined to outline how Microsoft would make money with the move, but hinted that business models could include advertising and fees for premium services such as online storage of large files.
The free versions won't include all the features of the desktop software, priced between $70 for a basic student version and about $350 for the professional version. For the upcoming software suite Office 2010, Microsoft plans to let users edit video in PowerPoint and manipulate images in Word -- features that would be unavailable in the free versions.
Investors didn't appear to be concerned about Microsoft's proposed giveaway. On Monday its shares gained 84 cents, or 3.7%, to close at $23.23.