I have to hand it to Phil, he called me out and pwned me. He gave perfect examples of why data is not necessarily safer in the users hands than it would be with Google. I still think there's something to be said for knowing that I'm responsible for my own files, but I'm willing to concede that may be more smoke and mirrors. But there is also some valid commentary today that Google apps doesn't really compete head to head. This is very true, because to be honest, Microsoft isn't really in this business of delivering office applications over the web. But they could be, and they could be a huge player.
But if Google Apps really does take off, I think Microsoft is in a great position. I've been following the Live initiative at a distance, but I'm definitely not an expert on it, so I haven't been tracking the marketing or the product as closely as I could. That said, I think with their suite of RIA technologies, Microsoft is the best positioned out of anyone in the tech world to provide software as a service.
But think about WPF. Yes, you're locked into Windows. I continue to think that's a bad move, but I realize there are still a lot of all-Windows shops that might be looking at an SaaS solution. Windows Presentation Foundation is meant for building Windows applications, but the kinds of windows apps that are being created are much more lightweight than I think most people realize. Expression Blend is built on WPF and the MSI installer is 11 megs. 11 megs for the entire application. That's insane. And WPF also offers a very robust development model with XBAPs (which stands for XAML Browser Applications). You need to be using Internet Explorer, but you can browse to WPF applications and run them right in the browser like any other web app. The only difference is that the experience blows Ajax away. Imagine running Blend or a lightweight WPF version of Office as an XBAP. Tie it in with server-based storage and I don't think Google could compete.
Microsoft has the software expertise to make a splash. I'm not sure what the strategy for Live is, or even WPF is. But if you can combine Microsoft's software with a more modern deployment model, you would be able to make huge inroads. With their Rich Internet Application technologies, that's much closer to a reality that it has been before. Will it happen? Doubtful, but I think all the pieces are there.