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After months of testing, Google is ready to see whether businesses large and small are ready to pay to use its online suite of basic business applications, including spreadsheets, e-mail, word processing, calendars and instant messaging.

Google, which has steadily transformed itself from a search engine pioneer into a data access, Internet advertising and business application powerhouse, introduced on Feb. 22 its Google Apps Premier Edition at a cost of $50 per account per year.

The Premier Edition adds Google Docs and Spreadsheets; Gmail for mobile devices on BlackBerry; and application-level controls to Google Calendar, Gmail, Google Talk and Start Page applications that the company introduced as a free service starting in August 2006.

While the free applications were initially offered to serve small and midsize companies, the Premier Edition has collaboration and management features that will appeal to companies of all sizes, including large enterprises, said Dave Girouard, vice president and general manager of Google’s enterprise group in Mountain View, Calif.

Google Docs and Spreadsheets allow multiple employees to work on the same document simultaneously and the applications keep track of all revisions and edits. The application-level control features allow administrators to set limits on how documents are shared inside and outside an organization.

Click here to read about the launch of Google’s private-label apps start pages.

Google is supporting the apps with a 99.9 percent update service-level agreement in which customers will receive credits for downtime. The company is also offering 10GB of storage per user, as well as application programming interfaces to enable data migration, user provisioning and single sign-on, along with mail gateways to allow businesses to customize their e-mail service.

These features are helping to draw interest from large organizations that “have a desire for choice,” Girouard said. Google is seeing a “higher level of interest from big company CIOs than we would have expected at the start,” he said.

Providing basic business applications, spreadsheets, word processing and e-mail as an online service “is a big opportunity in the market that nobody has taken advantage of yet,” he said.

But Girouard denied that the Premier Edition is designed specifically to take market share away from Microsoft Office. Google doesn’t believe that enterprise customers will “buy any less Microsoft products” because they decide to use Google Apps. Instead they expect that companies will use Google apps as a supplement to their Microsoft Office applications and to give employees who wouldn’t normally have a copy of Microsoft Office on their desktops a chance to use the Google productivity applications online, Girouard said.

Surveys have shown that more than 40 percent of the work force isn’t given access to e-mail by their employers, Girouard said. Google Apps could provide an inexpensive way for employers to provide e-mail access to workers in retail or in other industries where people are not normally linked to desktop workstations, he said.

To read Peter Coffee’s view on whether Google poses a serious challenge to Microsoft Office, click here.

But analysts said that the Premier Edition poses a long-term challenge to Microsoft, which has garnered huge revenues and profits from selling its Office package for hundreds of dollars a copy plus annual maintenance fees.

“This is the first time there is a compelling, low-cost, service-based alternative to Microsoft Office. And although Google isn’t positioning this offering directly against Office, that’s where it is headed,” said Erica Driver, principal analyst with Forrester Research in Cambridge, Mass.

Next Page: Window of opportunity.

“Microsoft has a couple of years’ opportunity to respond to this. But it is certainly an indicator of the direction in which Google is headed. And I fully expect [Google] to add more and more features and capabilities into this suite,” Driver said.

In the next few years, said Driver, Google will focus on delivering this service to workers who wouldn’t normally have access to Microsoft Office.

“But looking ahead a few years, I see this cutting into Microsoft’s revenues and I also see it forcing Microsoft to consider alternative delivery mechanisms for its own products—most noticeably software as a service,” she said.

Microsoft is definitely going to have to find a way to respond to the challenge posed by Google Apps over the next five years, said Jim Murphy, research director with AMR Research in Boston.

“It is the beginning of probably the most significant challenge we have seen to Microsoft on the desktop, enterprise or otherwise, in probably 10 years,” when it was locked in competition with IBM over the Lotus desktop applications, Murphy said.

What do corporate executives think about Google’s chances of cutting into Microsoft’s Office and Live business? Find out here.

The introduction of Google Apps is “timely,” he said, because enterprises will soon have to decide whether they will upgrade to the latest version of Microsoft Office.

Companies of all sizes will likely experiment with Google Apps before they decide whether to carry out the next Office upgrade. “At least it’s going to interest CIOs, and they are going to look at it,” Murphy said.

“In five years we’ll see a more competitive environment” in the desktop applications market, Murphy said. Microsoft will at least have that much time to decide whether it can use its own experience with the Office Live applications to successfully shift into the software-as-a-service model, he said.

One company that decided to make the shift is Prudential Real Estate Affiliates, a Chicago-area franchise that employees 450 sales agents and support staff. The agency has been using Gmail for nearly a year in place of an outsourced e-mail service that performed so poorly that it had to be replaced, said Camden Daily, the group’s technology director.

The agency had already worked with Google on the Google Earth and Maps projects, so it used its Google contacts to join the Gmail beta program. “We went ahead and switched, and basically everybody loved the interface ever since,” he said.

Daily said he rarely gets complaints from users saying they can’t access the Gmail service or are having trouble learning how to use it.

Using Gmail also saves Daily a lot of time and effort in software installation and maintenance. “We’re a pretty big real estate company. But we only have a couple of people in our IT department,” he said. Since all software updates and patches will be handled in Google’s data center, “if a new a new update comes along, I’m not going to have to walk around and touch 50 machines to install it. I don’t have to worry about patches, security problems,” Daily said.

There is also a lot of interest among the agency staff in using the Google Calendar, he said. But the agency has been holding off until it finds the right synchronization utility for staffers who want to access the calendar with their BlackBerrys and other smart devices.

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