The Word is out: Microsoft will face online fight on core software

The co-founder of Hotmail, the web-based e-mail service bought by Microsoft for $400 million a decade ago, is challenging the American software giant’s core $20 billion (£9.7 billion) office desktop business.

Yesterday Sabeer Bhatia released a free online rival to the bestselling Office suite of applications that will allow users to view, share and edit documents from any computer.

The Indian-born Stanford graduate said that Live Documents would pose a “significant” challenge to Microsoft’s propriety software business, which eventually would be made redundant by the evolving internet applications industry. Office, bundling the Word word-processing, Excel spreadsheet and PowerPoint presentation tools, accounted for a third of Microsoft’s total revenues last year. It is forecast to top $20 billion this year.

“We are just a few years away from the end of the shrink-wrapped software business. By 2010, people will not be buying software,” Mr Bhatia said. “This is a significant challenge to a proportion of Microsoft’s revenues.”

The latest rival product was developed by InstaColl, a Bangalore-based company that is chaired by Mr Bhatia and backed by SoftBank’s Bodhi Fund. He admitted that “a few million bucks” of Microsoft’s payment from the sale of Hotmail went into its creation.

Live Documents is similar to Google Apps, launched in February and used by companies including Proctor & Gamble, General Electric and Capgemini as a cheaper alternative to Microsoft. However, Mr Bhatia claims that his product is superior to Google’s in its range and quality, most crucially because it mimics Office 2007. Most of Office’s estimated 500 million customers have yet to upgrade from the 2003 version, while it is not available for Apple computers.

He said. “This will do for documents what Hotmail did for e-mail. Why spend $400 on an upgrade when you can get it for free?”

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