Microsoft Office vs. Google Apps: The business brawl

The barrier to entry for Google, says McLeish, is Microsoft's vast experience serving and supporting enterprises. "The foundation has been laid for Microsoft in the enterprise," she says. "It says a lot that it can still demand high prices for the full versions of Office when Google Apps are free or much cheaper."

Microsoft is quick to call out that it is a company built for businesses, while Google was built for consumers.

"We'll ask customers: Are any of these new entrants really committed to online productivity services for the enterprise?" says Ron Markezich, Corporate VP of Microsoft Online Services. "Are they making investments in the enterprise for the long haul? It's taken Microsoft 15 years to prove that we are committed to serving enterprises and now of course that's a large part of our business."

Big Fear: Cannibalise Office, Fail to Kill Google

But even with Google's tiny presence in the enterprise, it is still a giant brand name with deep pockets and products that most consumers (who also work at enterprises) are familiar with, particularly Gmail.

It may not be a true threat to Microsoft's enterprise customers now, but Google's cloud-based productivity apps have forced Microsoft to change its business model. Microsoft has created online versions of its software products, dropped prices and must justify to enterprise customers why they should pay top dollar for Office and Exchange when they could "Go Google" and save money.

This new dynamic has created a difficult conflict for Microsoft where it has to promote cloud-based apps to the detriment of its franchise desktop software products, says veteran tech analyst Roger Kay.

"Microsoft needs to be successful with Web apps, but not too successful," says Kay. "They're not getting full revenue from its cloud apps so they need to make them lightweight enough that people will upgrade to the full paid product, which is Microsoft's cash cow. Microsoft will be reluctant to give up on anything that makes them money."

This conundrum is not an easy one for Microsoft resolve, says Kay, adding that the worst case scenario for Microsoft is that Office Web Apps and Exchange and SharePoint Online take off and cannibalize Microsoft's client software, yet still fail to kill off Google Apps.

Google itself concedes that any overnight success in the enterprise is unrealistic, yet remains fully committed to the enterprise, citing rapid growth in Google Apps' short three-year life span.

"Google Apps have only been in the market since 2007 and we've gone from zero to two million business customers," says Rajen Sheth, Google's senior product manager for Google Apps. "There's so much potential here and we're in it for the long haul."

Where Microsoft is trying to migrate its products into a cloud environment, Google is fundamentally a cloud company, says Sheth, and has gone to great pains to build extremely large data centers designed specifically for nimble Web-based applications.

"It will be tough to build up the cloud expertise that's been built into Google's DNA since day one," Sheth says.

Would Microsoft Be All In for Cloud if Not for Google?

Still, the reality of today's enterprise is that Google Apps are simply not a wholesale replacement technology for Microsoft Office, says Ted Schadler, a vice president and principal analyst at Forrester Research.

"You may see enterprises move to Google for e-mail, but rarely will you see them replacing Microsoft Office with Google Docs," says Schadler, adding that Google Apps collaboration features such as Google Sites and Google Talk will likely be used only to enhance Microsoft Office.

"Google Apps will continue to have success with its collaboration and mobile features that augment Office in the enterprise. But I don't see it displacing Microsoft Office in any meaningful way," he says.

On thing is for sure though -- Google is heavily invested in its enterprise cloud play and although it may not have a critical mass behind it yet, it has forced Microsoft to adjust its entire business model.

It's worth asking: Would Microsoft be "All In" for cloud computing if there were no Google?