Microsoft is walking an interesting line between the successful but traditional software products of the past—Windows, Office, and so on—and its cloud-based future, which can be seen in such products as Windows Azure, Office 365, and Windows Intune, the cloud-based PC management service. During this time of transition, the company must continue updating and servicing its on-premises solutions while pushing customers, gently, toward more cost-effective and scalable cloud solutions.

This situation is beneficial to customers, since Microsoft often provides an interesting mix of on-premises and hosted solutions, giving customers more choice. So when you look at something like office productivity, you see on-premises products such as Microsoft Office, hosted versions such as the Office Web Apps, and then ancillary solutions such as SharePoint, which also come in both traditional and hosted versions. You can mix and match between these and related solutions, so a customer could provide part of its Exchange infrastructure in house, and part of it could be hosted in the cloud with federation linking the two together for management and integration purposes.

Office is also a great example because it's one of Microsoft's core product lines and a top driver of revenue. In fiscal year 2010, for example, Office revenues represented 30 percent of the company's overall revenues of $62.5 billion, or the same as for Windows. And that fiscal year ended just as Office 2010 was released, a release Microsoft has described as its fastest selling ever at retail.

But we're in this age of transition. And during this time, Microsoft is vulnerable, because users may move on to other hosted office productivity offerings as they make their own transitions to the cloud. One primary competitor here is Google Docs and Google Apps. These solutions haven't received much traction with larger businesses yet, and they won't until they've matured quite a bit. But they're free, and appeal to individuals and very small businesses as a result.

Google, of course, isn't standing still. Recognizing that customers still know and even love Microsoft Office, the company has created various integration tools over the years that bridge the gap between its free and cheap online services and Microsoft's Windows-based software. And this past week, the company delivered a tool called Google Cloud Connect that drives home Google's strategy in this market. Which is: we'll work with what you use today, with an eye toward getting you to migrate away from Office in the future.

It's a good idea. And one that should—and does—alarm Microsoft.

To understand why, it's necessary to examine how Google Cloud Connect differs from the Microsoft approach. Installed on client PCs, Google Cloud Connect is essentially a plug-in that appears as a toolbar in Microsoft Word, Excel, PowerPoint 2003, 2007, and 2010. You must logon to a Google account, and then choose sync settings, which can be automatic or manual. When used in the default automatic sync mode, each Office document you create or edit is automatically saved, or synced, in your Google Docs repository as you work. This is itself a powerful bit of functionality, since it provides crucial off-site backups, essentially, of your documents.

Google Cloud Connect also provides basic collaboration capabilities, allowing multiple users to edit a supported document type simultaneously, but, curiously, only using Microsoft's Office applications.  That is, you can't use Google's own cloud-based Google Docs tools to work collaboratively with others using Office.

In fact, you can't use Google Docs at all: Documents synced to Google's servers are stored in Microsoft formats, and while you can convert them to something Google understands for later processing, the results are often terrible, with butchered formatting, even with very basic Word 2010 documents.

And like most Google solutions, Cloud Connect isn't exactly enterprise friendly. It needs to be manually installed on a per-PC basis. So it targets the same individuals and very small businesses as other Google products.

What Google Cloud Connect gets right, in my opinion, is the seamless integration with cloud backup. Even if you never intend to use Google Docs, this is a pretty good way to ensure that each document you work with ends up in the cloud, if only for backup purposes. And while there are some application reliability issues—Word has spazzed out on me temporarily a few times this past week—it does get the job done.

Microsoft is making its own play for hosted productivity. And while its Office Web Apps aren't as full-featured as their traditional counterparts—they're not even available offline, for starters—Microsoft is also offering customers ways to integrate its rich, client-side Office suite in useful ways with various cloud services as an interim step.

So what does Microsoft offer? Does it have a credible response to Cloud Connect?

 

For businesses that can handle the cost and administration of an on-premises solution, SharePoint is a superior document repository and collaboration solution, and an affordable hosted version is coming with Office 365 later this year. But until then, SharePoint is overkill for the market Google is going after. Instead, what we need to look at is Microsoft's current offerings for individuals and small businesses. (There is a free SharePoint Foundation on-premises solution, but it requires Windows Server and server hardware, and you must install and administer it yourself.)

Individuals can install Windows Live Mesh to gain Cloud Connect-like sync, both with a hosted service (in this case Windows Live SkyDrive) and with other PCs. I use Live Mesh regularly, and recommend it, and unlike Cloud Connect it works with virtually all file types. But it has no integrated collaboration functionality. 

That said, those who store documents in SkyDrive can edit them, and collaborate, in Office Web Apps. The story here is a bit mixed: While Excel Web App supports two users editing simultaneously, it is alone in this regard. Word and PowerPoint offer no such functionality.

Google Cloud Connect is about using traditional Office in tandem with a cloud service. So how does Microsoft handle that scenario? Office 2010 includes a handy Save To Web option that works like traditional Save, but saves the document to SkyDrive. (Likewise, there is a Save to SharePoint option.) But this isn't sync, it's just Save: The one copy of this document will be stored online. (On the flipside, this works without installing a plug-in.)

Office documents retain their formatting no matter where they're saved, and that's true if you later use traditional Office applications or the Office Web Apps. This is a very big deal, and while this is true with documents stored on Google's servers, opening those documents in Google Docs will almost certainly wreak havoc with formatting.

But there's no integrated sync, not really. So you'd have to turn to Live Mesh, which, while not a plug-in, is still a separate install.

Frankly, neither approach does everything the other does, and I think this is ultimately what's most interesting ... and frustrating. Microsoft's video-based (over)reaction to Google's new tool is, well, interesting as well, and in at least one instance (the claim that auto-synced documents are public by default) incorrect. I understand why Microsoft is responding in this way, but I'd rather see them make Google Cloud Connect completely irrelevant by improving their own capabilities.

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