Next up: Office 2010 with a nod to cloud computing

While Microsoft's marketing focus has been on the launch of its new Windows 7 operating system this month, one of its major challenges next year will be convincing customers to shell out for a new version of its other cash cow: the Office business software suite.

Office 2010 - which includes revamped versions of ubiquitous programs such as Word, Excel and PowerPoint - is in the "technical preview" stage of development, meaning it is being trialled by selected users for feedback and tweaking before next year's general release.

Office has been a big seller for Microsoft as the default software package for businesses.

But it is facing increasing competition from free word processing, spreadsheet and presentation tools provided by competitors including Google, which has also tapped into user enthusiasm for the convenience of "cloud" computing - software run over the internet rather than installed on specific PCs.

On a visit to New Zealand this month, Alex Payne, Microsoft's director of Office product management, said Office 2010 would include cloud computing functions that extended the company's "software plus services" strategy of combining on- and off-line computing.

He said while Google's approach was to focus on cloud-based services "we're coming at the market a little differently. We don't think companies are going to use just software or just services - it's the combination of the two that makes a compelling story."

Microsoft is integrating Office 2010 with its Windows 7 PC operating system and the latest mobile version - Windows Mobile 6.5 - to tempt users with a set of software products that can be used on the web, a PC or a mobile device.

Office 2010 will also signal the demise of a long-time Microsoft product, the free Works suite of tools, a down-market version of Office which is being retired in favour of a free, advertising-supported version of Office which will ship on new PCs.

Payne said it made sense for Microsoft to have a single suite of software rather than continuing to sell the increasingly outdated Works product alongside Office.

Users of the free version could buy an upgrade without having to download or install an entirely new software package.