Marguerite Reardon/CNET

Microsoft took the beta tag off Office 365, launching the product at a New York City event today hosted by Chief Executive Steve Ballmer.

The new product is the software giant's effort to bring Web functionality to its widely used desktop applications as well as server products that are found primarily in large enterprises. Microsoft is betting that by offering products such as its Exchange e-mail server and its Lync online communications technology as Web services, it can expand the market to small and midsize businesses that don't have IT staffs and have traditionally shied away from those products.

Microsoft is doing that by hosting the service remotely on its servers and charging customers a monthly subscription fee. More than 20 telecoms are also partnering with Microsoft to package and sell Office 365 with their own services to small and midsize businesses.

"With Office 365, people can stay connected with instant messaging," Ballmer said at the launch event. "With Office 365, people can work together on files and documents simultaneously."

Office 365 is available in 20 languages and in 40 countries.

That's a key opportunity for Office, which is used by more than a billion people worldwide. Microsoft's Business Division, of which Office is the largest component, is the company's largest, expected to generate more than $21 billion in the fiscal year that ends June 30. And even though it should grow at close to 12 percent, the division is doing so in a largely saturated market.

The constant challenge for Office is to find new users. Office 365 makes the company's server products available to businesses that otherwise couldn't afford the cost or complexity of them.

"It's exciting to imagine the possibilities, particularly for the companies that have little or no IT support," Ballmer said. "Office 365, where Office meets the cloud, is a big step forward."

With Office 365, employees can collaborate on a Word document online, reading and editing it at the same time. They can share PowerPoint presentations, updating them from a browser on mobile phones. Users can see from inside an e-mail which recipients are online and quickly launch a video conference to include them.

Microsoft announced plans to launch Office 365 last October. In April, it opened up a beta version of the product to the public. The company said that more than 200,000 customers have been testing the service, and that some are reporting technology cost reductions of 50 percent.

Scripps Networks, which owns such lifestyle channels as the Food Network, HGTV, and the Travel Channel, was one of those beta customers. The company's 2,000 employees all use the Office 365 predecessor, the Business Productivity Online Suite. Chris Roberts, Scripps Networks senior manager for information security, said the new service feels more intuitive.

"To me, it seems cleaner," Roberts said. "It's hard to imagine you're in a browser. It feels like you are in the client application."

Competition from Google

While Office is widely used, it's faced growing competition online from Google, whose Google Apps service has steadily added users. Though its customer base is beyond tiny compared to that of Office, the service, which offers e-mail, word processing, and calendaring applications, has landed some marquee customers in recent months, such as Genentech, the city of Los Angeles, and Virgin America.

Google used the Office 365 launch to pitch Google Apps, suggesting that Microsoft was trying to update outdated products.

"You can't just take legacy, desktop software, move some of it to a data center and call it 'cloud,'" Google Apps Product Manager Shan Sinha wrote in a blog post. "Apps was born for the Web and we've been serving hundreds of millions of users for years."

One advantage that Google Apps offers is price. Google Apps costs $50 per user per year. Office 365 has a more complex pricing structure that starts at $6 per user per month for e-mail, Web-based calendaring and contacts, and collaboration software. (Larger businesses can pay just $2 per user per month for just e-mail services.) The most expensive flavor, which includes management features as well as voice and video communications services, runs $27 per user per month.

Microsoft believes the familiarity of Office, as well as its track record as the longtime market leader in productivity applications, will be enough of a lure for customers. And Ballmer said the subscription fees are a price small and medium-size businesses can "predict and afford."

"Google is a search and advertising company," said Clint Patterson, the communications lead on Office 365. "We have thousands and thousands of people who sleep, eat, and drink productivity apps every day."

Here's a video of Office 365 Senior Product Manager Ryan McGee demonstrating how to update a PowerPoint presentation on a mobile phone using Office 365.







Updated at 7:53 a.m. PT with details and analysis.