Taking on the Office gorilla, online

Following Google's acquisition of hosted productivity software start-up Writely in March, there has been an increased buzz around the potential of online Office-like apps to upset Microsoft's dominance.

Silicon-Valley based start-up ThinkFree is one of the hopefuls, alongside the likes of Numsum, GOffice and FlySuite, that are hoping to grab a chunk of the multi-billion dollar business that Microsoft currently controls. It is thought that Office generates around 40 percent of Microsoft's revenues and up to 60 percent of its profits — supporting such less profitable endeavours as MSN and the gaming division.

ThinkFree claims to have focused on delivering the highest level of compatibility with Microsoft Word, Excel and PowerPoint documents, but differentiates itself by being largely free and by making use of online collaboration. The company offers around 1GB of upgradeable online storage and easy insertion of images through Flickr, the online photo management community owned by Yahoo.

ThinkFree is aimed mostly at consumers and students, but the company has plans to offer an online suite for the small and medium-sized business market later this year that would provide additional storage and other fee-based services. ThinkFree also claims to have attracted interest from enterprises that are looking to host ThinkFree behind their firewall as a more effective way of delivering Office to thin clients.

ThinkFree chief executive T J Kang was visiting London this week to meet with potential investors. ZDNet UK caught up with him to discuss surviving the dot-com crash, surfing the Web 2.0 boom, and get cosy with Yahoo.

Q: The idea of a completely hosted alternative to Office has only really attracted much mainstream attention since Google bought Writely — how long have you been working on the idea?
A: The first full version of the service debuted in 2000 in Palm Springs, California. We did raise quite a bit of media attention then. Microsoft was battling the Department of Justice and we were seen as this small company that had take on an 800lb gorilla. Speaking at the time, Steve Ballmer said that although Linux was the number one threat to Microsoft at the time, we were also on his radar. So for a while there we had this red dot following our foreheads, but we ended up disappointing Ballmer as there just weren't enough consumers with broadband at the time to make the business work.

Although you are looking to take a chunk of Microsoft's Office business, you also make a lot of the compatibility your products have with theirs.
Whether we like it or not, we live in an MS-centric world. Office is not really proprietary anymore — it has become a de facto standard. It is not a standard that has been approved by a standards body, but it's a standard.

Aren't you afraid that Microsoft is going to launch a hosted version of Office and make your offering redundant? They are already making noises in this area with Office Live.
Microsoft probably will enter this space in some shape or form — they have enough resources to do it. But one problem is that I don't think they have a business model. Microsoft doesn't want to give away Office.

They like to talk about Windows and Office Live but I don't think they can really put their hearts into that business model. They gave away IE, but did it to kill Netscape, and gave away Windows Media Player to kill RealPlayer. There was no real revenue from Windows Media Player or IE, so there was no impact on their bottom line. But Office is different, if they decided to give away part of it then their stock price would tank.

Google has shown that you can give away everything, but Microsoft can't do that — it is very hard to be your own agent of destructive change. They will drag their feet...

... and they will pay lip service to expanding their hosted model, but I don't think they will be aggressive or creative. I am hoping that the delay will give us the room to capture a small but significant portion of their business. I don't think everyone will switch, but small businesses or consumers will not pay $400 for Microsoft Office.

Google is obviously your other big competitor. Where you surprised when they announced their acquisition of Writely, and do you think you'll be able to compete?
Google buying Writely was actually a big help for us. It raised awareness around the online Office space, and showed that the big guys are really interested in this area. We think we are much better than Writely in terms of our feature set. We did talk to Google at the time, and still talk to them now. But our goal is not to develop something quickly and be bought out; I think we have something that can grow. It is good to have partners but you have to remember that an Office suite is a huge business — about $10bn (£5.3bn). Microsoft makes about 60 percent of its annual profit from Office, which they use to underwrite their loss-making businesses like Xbox and MSN.

A tie-up or acquisition by Yahoo would help you to compete with Google/Writely — what is your relationship at the moment?
We talk to them from time to time and make use of their APIs for our integration with Flickr. Maybe something more will be offered in the future — we are talking.

What is your exact business model at the moment? I guess it's mainly advertising-driven, given that you aren't charging subscriptions.
Our business will include advertising. Right now we don't have any ads on the site but we will in the next couple of months. They will mainly be contextual ads related to the information people are viewing.

So how are you surviving at the moment, if you have no ad revenue — are you living off venture capital investment?
We have a corporate sponsor — a Korean software company called Hansoft. They claim that everytime our name is mentioned alongside theirs in the press, their stock price goes up. Yahoo claims the same thing happens for them with Flickr. We will also be looking to launch a subscription-based service later this month, which will contain premium services such as the ability to turn off ads and customer support.

What about the enterprise space — do you think ThinkFree will be adopted outside of the consumer and small-business markets?
We have five large companies using ThinkFree internally behind their firewall as way of delivering office applications to thin-clients or PCs. Employees can run their ERP and mail in a browser now, and have no real reason to go out of browser apart from to access Office. If a machine breaks then the machine can just be changed if all your applications are hosted, but that can't happen at the moment with Office. Companies have tried using Microsoft Office over Citrix but it proved to be hard to implement and the user experience was fairly poor.

So how are you looking to grow your installed base this year?
We have around 100,000 users currently but are looking to grow that to around 1 million by the end of this year. Our original goal was about 300,000 but we think we can exceed that.

Are you looking to expand into other regions — are there international versions of ThinkFree?
The site is only available in English at the moment, but the actual tools are multi-region. We don't have accurate plans for foreign versions of the site yet, as we want to have success in the US market first with English speaking users. We have around 55 developers at the moment and five sales people, so that is not really enough to go to other countries, but we may look to partner with local ISPs.