While the software giant dominates the office space with a 94% market share it has been facing increased competition from Google.
At a San Francisco event, Microsoft unveiled Office 365.
The product brings together Microsoft Office, SharePoint Online, Exchange Online and Lync Online.
This means instead of paying for packaged software and installing it on a PC or corporate server, Microsoft will host and deliver the software from its own giant data centers.
“We are at a pivot point in the adoption of cloud services,” said Kurt DelBene, president of Microsoft’s Office division.
“Customers will get the best of everything we know about productivity, 365 days a year.”
Microsoft said it has around 40 million customers using one of its cloud-based services.
“The desktop or on-premises services are still king, where customers run their own software and their own data center,” Chris Capossela, senior vice president at Microsoft told BBC News.
“That is still the vast majority of the industry but it is moving rapidly. Office 365 offers the opportunity for Microsoft to reach more of those small and mid-sized customers who don’t have the people to run their own IT services and now we can say you don’t need them.”
For the smallest customer, Office 365 will be available for $6 per user a month. For larger enterprises, the service will include added features such as phone support, and will cost between $2 per user per month to more than $20 per user per month.
“This is a big deal for Microsoft,” said Ina Fried from technology news site CNET.com.
“They make most of their money from two products – Windows and Office. This is really changing the way they make money via a subscription service and represents a big change in the way they sell things.
“They only get paid when people upgrade and this product allows them to get paid on a more consistent basis,” added Ms Fried.
‘Head to head’
The battle for the office software market has intensified with Google offering its own suite of networked applications.
While a number of products like email and spreadsheets are free, businesses can also pay for premium versions. Google’s share of the market has been estimated at 4%.
Other competitors include Salesforce and IBM.
Microsoft began offering its popular software as cloud services a couple of years ago in large part to respond to a trend championed by Google.
“We believe we will win by out-innovating our competitors and even by out-innovating ourselves,” said Mr. Capossela.
CNET’s Ms. Fried said: “This actually puts them more head to head with Google.”
Providing Office as an online service will mean that Outlook exchange and document programmers that have been fixtures on business networks will now be accessible through smartphones, tablet computers and other gadgets used by a mobile workforce.
Jim Smith, a senior director of intranet services for Starwood Hotels, said moving to the cloud has really paid off.
“We have made tremendous savings especially in travel. We have over 1,000 hotels in our portfolio and it is virtually impossible for our senior leaders to travel to all these different properties.
“Now they can connect and collaborate remotely and share documents, calendars and have discussions and hold virtual meetings without having to buy that air ticket or take time out of the office,” said Mr. Smith.
Office 365 is available now in beta in 13 countries including the US, Canada, the UK, France, Japan, Mexico and Germany.
The product will go on sale next year.