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Google is smart to play coy about whether its online business application bundle is aimed at cutting into Microsoft Office’s dominance on the enterprise desktop.

It has a lot of work to do yet before an online suite like the newly introduced Google Apps Premier Edition can seriously challenge the solid position of Microsoft Office in enterprises. But only time and steady development and refinement of the applications will determine whether an on-demand, Web-based application suit can overturn the nearly 25-year dominance of packaged software.

Then there is the question of whether Microsoft itself will choose to make a radical transition and develop the “Office Live” distribution model until it turns itself into a true software-as-a-service company that sells most of its software as Web-based applications.

It might be the logical move for Microsoft to make. But Microsoft would also have to transform its corporate structure. The current pricing model of software as a service greatly undercuts the price of most comparable on-premise packaged software because the cost of deploying and maintaining the software is sharply lower.

Click here to read Steven J. Vaughan-Nichols’ opinion that Google Apps have the stuff to hurt Microsoft Office.

Microsoft would have to learn to prosper in a world where instead of selling packaged software for $250 to $500 a copy, it would need to make a profit selling software online for $50 to $150 per user.

Microsoft might have to endure a significant downsizing before it could survive on such a pricing model. But that is exactly the challenge that Microsoft is facing in the long run.

It’s not going to happen overnight. Large enterprises are not going to shift to Google Apps just because it is a cheaper and less complicated alternative. These companies already have a lot invested in employee training, as well as in data and documents all stored in Microsoft Office formats. They will think long and hard before they would even seriously consider switching to an online office suite.

The main barrier to adoption of online application services in this era of the Sarbanes-Oxley Act and government-mandated compliance with data integrity and security regulation is that enterprises simply can’t afford to have their data managed off-site by a third party.

Data stored on Google’s servers isn’t encrypted, and it can’t offer any iron-clad guarantee that the data won’t be compromised by an external hacker or an internal administrator. This is a difficult but not insoluble problem that SAAS companies will have to fix before large enterprises will buy into it.

But there is at least one large and growing enterprise that isn’t going to let these concerns hold it back from a complete switch from Microsoft Office to Google Apps.

To show its commitment to SAAS and to support a fellow purveyor of on-demand applications,, which markets its flagship online customer relationship management application, intends to switch entirely from Microsoft Office to Google Apps.

We don’t plan to be buying Microsoft office or exchange any more,” said CEO Marc Benioff.

“We think it will take about a year for us to make the entire move,” Benioff said. “We already have teams who have moved off of Microsoft’s products

Next Page: Fighting a common enemy.

Google and “have a common enemy, which is the software model, and we want to show people that there is a better way to do things” with SAAS.

Benioff said he believes Google will succeed with Google Apps for the same reason that’s CRM service is growing rapidly.

“I think customers want a new delivery model, lower-cost ease of use. They’re tired of the upgrade and updates and the need to buy a new copy of Microsoft office every time Microsoft makes a change to their infrastructure,” Benioff said.

To get a glimpse of what the Google Apps look like, click here.

Google Apps customers won’t have to deal with upgrades and updates, which Google will make available to all customers simultaneously when Google updates its own service.

Not unexpectedly, Benioff sees only benefits to moving Google apps and no barriers. He is unconcerned that Microsoft Office has far more features and functions than Google Apps.

“Since most of our users only use about 20 percent of the Microsoft functionality, we think that Google is already there.” He contends that Google probably has about 80 percent of the functionality the users need today.

While it’s waiting for enterprises to make up their minds, Google will have plenty of opportunities to let Google Apps to nibble at the edges of large companies. Expect to see Google Apps creeping into corporate departments or remote offices that don’t have ready access Microsoft Office.

Organizations my start adopting Google Apps in the same way that business users started using PC databases, spreadsheets and word processors nearly 25 years ago. They adopted these products without the knowledge or approval of the IT department simply because they were effective and even fun to use.

Google can build a good business winning over small and midsize companies that will likely be more than ready to pay $50 a year to gain access to basic but effective spreadsheets, word processing, e-mail and calendars.

But in five or 10 years time, the story may change and SAAS will become so acceptable that even large enterprises are buying into the cost and management benefits of this software deployment model.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at

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