Microsoft Corp will release three versions of its dominant Office software that users can access over the Web, catching up with products that rival Google Inc launched three years ago.
The news helped send shares in the world's largest software maker up 2.7 percent by midday, more than double the gain in the Nasdaq Composite Index.
It is the latest salvo in an intensifying war between Microsoft and Google. Google announced plans last week to challenge Windows with a free operating system. Microsoft introduced a new search engine, Bing, last month.
Microsoft is finally making the conversion through the Web-based world. First, we saw that through Bing. Now we are seeing that through Office, said Jefferies & Co analyst Katherine Egbert.
Microsoft will offer for free to consumers Web-based versions of its Office suite of programs, including a word processor, spreadsheet, presentation software and a note-taking program.
Microsoft will also host one Internet business version of Office at its own data centers, charging companies a yet-to- be-announced fee. Companies with premium service contracts will have the choice of running a second Web-based version from their own data centers at no extra cost.
The company hopes to make money by using the free software to lead users to its ad-supported websites, including Bing. Analysts have said that Bing's early signs of success suggest Microsoft may be rounding the corner in efforts to turn around its money-losing Internet division.
Still, a free version of Office could hurt sales of Microsoft's top-selling and most profitable unit. One of Office's most popular titles is a home version that sells for $150. It includes the four programs that Microsoft will give away.
Microsoft is in a tough spot. Their competition isn't just undercutting them. They are giving away the competitive product, said Sheri McLeish, an analyst with Forrester Research.
The Office division rang up operating profit of $9.3 billion on sales of $14.3 billion in the first three quarters of the software maker's current fiscal year.
McLeish expects Microsoft to overtake Google in the market as the hundreds of millions of people who use Office flock to try out the Internet version.
Microsoft will release the web offerings when it starts selling Office 2010, it next major release of the product, sometime in the first half of next year. Its current version came out in January 2007.
The software maker unveiled an early release on Monday at a conference for business partners in New Orleans. It will be distributed to tens of thousands of testers.
Company spokeswoman Janice Kapner said the free Web version will provide a very rich experience and probably have more functionality than Google.
Office 2010 is among a wave of upgrades to Microsoft programs planned over the next year. A new version of its ubiquitous Windows operating system is coming out in October and a new version of its widely used email server is also in the works.
Microsoft shares rose 2.7 percent to $23, while the Nasdaq was up 1.2 percent at 1777.50
(Reporting by Jim Finkle; editing by Richard Chang and Andre Grenon)