While Microsoft CEO Steve Ballmer claims that free or inexpensive online alternatives to the software giant's dominant Office suite have had little impact in the market, it's pretty clear that Microsoft is taking the threat seriously. Recently, the company began broadly testing web-based versions of several key Office applications, which will be marketed to consumers and businesses as Office Web Applications. Here's what you need to know about Office Web Applications.

What are Office Web Applications?
The Office Web Applications are four web-based applications based on classic Microsoft Office applications. Dubbed Word Web Application, Excel Web Application, PowerPoint Web Application, and OneNote Web Application, these solutions provide an Office-like user experience and a good percentage of the functionality one would expect from a traditional Office application. (A fifth related solution, Outlook Web Application, is simply a rebranded version of Outlook Web Access and isn't provided along with the other Office Web Applications.)

The question with Office Web Applications is whether these solutions can replace their respective desktop-based counterparts.

At first glance, it appears possible.

Each provides an Office 2010–like UI, with ribbon-based controls that replace the menus and toolbars from earlier Office versions. Comparing the Office Web Applications with their desktop counterparts, you can see that Office Web Applications don't include as much functionality and are basically stripped down versions of the desktop applications. Certainly, this seems like a non-issue for less demanding users.

But Microsoft has specifically designed Office Web Applications to work together with the traditional desktop applications, much in the same way that its Windows Mobile-based Mobile Office applications work. That is, Office Web Applications supplements Microsoft Office but doesn't replace it.

Of particular interest are the collaboration capabilities in Excel Web Application and OneNote Web Application where two or more users can edit and interact in a live, open document simultaneously. I've only tested this with Excel Web Applications so far, but it appears to work as advertised. All of the web applications support easy sharing of documents, however, though that capability appears to be tied to the underlying storage scheme, which will be SharePoint-based for businesses.

Where Office Web Applications excel is in what Microsoft calls document fidelity. If you pass a supported document through any of the web apps, perform editing, and then re-open that document in the desktop application (or vice versa), you should experience no formatting issues.

This was the case in various PowerPoint and Excel data files I tested, though I wasn't able to test a more up-to-date Word Web Application version in time for this article. Microsoft promises similar fidelity with the next version of Mobile Office as well.

There are some other limitations, however. One major issue is that the Office Web Applications don't support any form of offline mode—as, say, do Google Docs—so you won't be able to access or edit online documents via the web solutions if your Internet or network connection goes down. This makes the solution less viable as a day-to-day solution, or for those who travel frequently and are often offline.

Also, even if you see the Office Web Applications as a supplemental add-on to Microsoft Office, only the very latest version of Office—Office 2010, due in the first half of 2010—is compatible with documents stored online. Microsoft won't be providing an add-on for users of Office 2007 or older Office versions.

How Will They Be Delivered?
Consumers will access Office Web Applications via the ad-supported Windows Live SkyDrive, which provides 25GB of online storage. Businesses will have two options: Microsoft will make a hosted version of Office Web Applications available via SharePoint Online that will be fee or subscription based and open to all customer types, including volume license customers.

Additionally, those who opt into the Office Volume License program will be able to host Office Web Applications on their own SharePoint server internally. In the business scenarios, you will be able to integrate the services into your managed Active Directory infrastructure via a standard SharePoint experience to gain full IT administration, auditing, and document lifecycle control and to perform backup and restore.

Recommendations
Microsoft has the feedback metrics to prove the ribbon UI is a usability slam dunk. Pushed across all applications in Office 2010 and now to the web in Office Web Applications, the ribbon UI creates a consistent productivity environment that blurs the lines between the PC desktop and the web.

At the very least, the online apps should provide a nice supplement to the traditional desktop apps. You might realize some cost savings around keeping certain users on older Office versions and using Office Web Applications where possible. Office Web Applications should be enough to prevent most Microsoft shops from even considering Google Apps or other online alternatives.