With Office 2010, Microsoft Braces for Battle

Microsoft (MSFT) is finally getting the hang of this software thing. After years of problematic products that tarnished its reputation and at a time when its model of prepackaged, locally installed software is under unprecedented assault from Web-based alternatives, the company is showing signs it can respond to the mortal threats it faces.

First came last fall's Windows 7—the clean, stable successor to the unlamented Vista operating system—which finally gave businesses and consumers a compelling reason to upgrade their existing setups. Now comes a new version of the company's other great cash cow, Microsoft Office, which improves the world's most widely used productivity software.

More is at stake, however, than just profits. Microsoft, beset by stumbles in such critical areas as mobile phones, is under pressure to prove its relevance in a changing marketplace. Office does so by preserving its traditional approach while acknowledging that computing in the cloud—distant online servers—isn't just a fad. It's the old Bill Gates philosophy of "embrace and extend" brought up to date.

Office 2010, which goes on sale June 15, isn't the wholesale overhaul that its predecessor, Office 2007, represented. This is refinement, not revolution: The file formats remain the same, and most users who are content with what they can accomplish using their current version will have little reason to spring for the upgrade. At the same time, the new version adds scads of features to the suite's core applications—Word, Excel, PowerPoint, and Outlook—without burying usability in the process. It also scales back a few of Office 2007's excesses and, perhaps more significantly, braces Microsoft for the coming battle with archenemy Google (GOOG) that will play out across a number of fronts in the next several months. Netbooks running Google's Web-centric Chrome operating system may show up later this year. Meanwhile, Microsoft continues to pour resources into Bing, the latest effort to dent Google's supremacy in search. Nowhere, however, is the war likely to be hotter than in productivity software.

Google's weapon of choice, its online suite of programs called Google Docs, is more than just competition: It's an assault on Microsoft's entire being. Google Docs is software as a service; both the programs themselves and your data reside in the cloud, to be summoned as needed from any Internet-connected computer and dismissed when you close your browser. And, in its simplest form, Google Docs is free.

Microsoft Office decidedly isn't free. The basic consumer version, called Home and Student, will cost $149; it includes Word, Excel, and PowerPoint but lacks Outlook, Microsoft's e-mail and calendar client. The Home and Business edition, which includes Outlook, will list for $279; Office Professional, which also includes publishing and database applications, will go for $499.

The big news about Office isn't what's in the shrink-wrapped package, though. It's what's on the Web. For the first time, Microsoft is offering Internet-based versions of Word, Excel, and PowerPoint. These apps, like Google's, are free, but unlike Google's, they aren't intended for use in lieu of Office programs installed on your hard disk. While they can be used purchasing Office 2010, Microsoft has crafted them more as adjuncts to the programs you've paid for, facilitating online collaboration and mobile access to your work.

The 2007 version of Office marked a radical revamp of the software. Gone was the familiar structure of pull-down menus through which you reached ever-more-arcane functions and features. In its place, Office 2007 introduced what Microsoft calls "the ribbon"—customizable strips of controls that sit atop your spreadsheet or memo, changing when you click a tab corresponding with the general task you want to accomplish.

Office 2010 keeps the concept of the ribbon, which should make the learning curve considerably easier. It even extends it, most notably to Outlook, which also gains new ways to organize e-mail threads into conversations and the ability to function with such social networking sites as Facebook and LinkedIn.

The new Office also incorporates some welcome changes. For instance, File is back. In Office 2007, that venerable item was replaced in the upper-left corner of the navigation with a shiny Office logo. It wasn't readily apparent that you had to click the logo to access the old File options. (You know, those unimportant commands like New, Open, Save, and Print.) In Office 2010, File has been resurrected as a tab that takes you to a new area Microsoft calls Backstage. Here the traditional commands coexist with options to set permissions on who can do what to your document, check to make sure it is compatible with older versions, and share it via e-mail, the Web, or a server on your company's network.

Heavy users of the ubiquitous PowerPoint presentation software are likely to gain the most from the new Office. Microsoft has significantly expanded the picture-editing tools, making it less likely you'll have to duck over to Adobe (ADBE) PhotoShop mid-project to get those graphic effects just so. There is also the ability to embed and tweak videos in PowerPoint slides, and add-ons available on the Web can broadcast a presentation over the Internet to viewers who don't have the software installed on their computers.

The Excel spreadsheet, meanwhile, has introduced something called Sparklines, minicharts that reside within a cell and render small bits of data graphically. Word even lets you recover unsaved versions of your documents. Besides allowing you to save your work to your local hard drive, Office 2010 allows anyone with a Hotmail account or other Microsoft-issued ID to make use of SkyDrive, 25 gigabytes of free online storage. Once your work is stored on the cloud, you—or whomever you designate—can access it using the new Office online apps.

These online versions of Word, Excel, and PowerPoint are designed to evoke their locally installed counterparts without precisely duplicating them. They too make use of the ribbon interface, and if they lack the full scope and power of the paid Office programs, they provide more than enough functionality for most users.

The big question for Microsoft—and Google—is how users will want to utilize productivity software. If the world remains PC-centric, Office 2010 will be a winner. If the cloud eventually supplants the desktop, the new Office Web Apps will keep Microsoft in the game, but that game will be a lot less profitable.

Office 2010: Professional version ($499) includes publishing and database applications in addition to Word, Excel, and PowerPoint

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