In the clearest sign yet that the big guns are preparing to step up the battle for Web Office, Microsoft has said it is considering releasing a version of Microsoft Works (the poor cousin of Microsoft Office) as a web suite. The desktop version of Works retails for $50 and includes a calendar, word processor, spreadsheets, Web Browser and e-mail. While its currently positioned as a home productivity toolset (to do your accounts, write letters, etc), it could pretty easily be re-positioned as a (small) business web office suite.
In any case - because Works includes basic word processing and spreadsheet software, to web-enable that and bundle it as a suite would be a step above what both Microsoft and Google currently offer. Right now Microsoft has Office Live (web hosting, email, project collaboration) and Google offers Apps For Your Domain (email, IM, calendar and website creator).
Microsoft's planned web-based Works would be a free package, supported by advertising. As Reuters put it:
"[Microsoft] faces a growing pack of Web-based competitors -- led by Google -- that is offering similar [office] technology for free with a business model that makes money off advertising.
The world's largest software maker is now mulling how it can move Microsoft Works, a basic suite of business software that often comes preloaded on inexpensive consumer PCs, onto the Web as part of its growing stable of free online services."
I think this is a wise move by Microsoft to pre-empt Google's upcoming Web Office suite. It clearly won't affect sales of their flagship MS Office, as the functionality is much richer in the desktop version - even more so when Vista and Office 2007 are released. Works is very basic by comparision - but it does have word processing and spreadsheets.
On the other hand Google will probably easily trump a web-based Works, once they package up Writely and Google Spreadsheets into a proper suite. So far there have only been hints that Google will take that next step - perhaps they're still busy working on the business models for such a move.
All in all, things are starting to get interesting in the Web Office space. I wouldn't mind betting that Google pushes forward whatever secret plan they have for a full office suite, now that Microsoft has made noises about webifying word processing and spreadsheets.