According to a report in "Business Week," Microsoft's scoffing at Web-based productivity tools such as ThinkFree, Google's Writely, and Google Spreadsheets was nothing but talk after all. Behind the scenes, the software colossus has been working to turn its Microsoft Works tools into Web services that can compete with these and other online challengers.

"It's official now," ThinkFree CEO TJ Kang told "Business Week." "We're definitely on \[Microsoft's\] radar."

The revelation about Microsoft's plans came courtesy of a Securities and Exchange Commission (SEC) filing, in which Microsoft for the first time listed ThinkFree as a rival to its Office business, which generates almost $12 billion in revenues a year and is used by more than 400 million people worldwide. ThinkFree, by comparison, barely registers in either category.

"Business Week" reports that Microsoft will move some of the technology from its Works 8.0 suite, which includes simple word processing, spreadsheet, and project management tools, to its Office Live subscription services, which are now in beta. Publicly, the company will say only that it's working on a new rendition of Microsoft Office Live that will include more features and be available in both free and subscription versions.