Worried by the small but growing number of small businesses and consumers switching from Microsoft Office to cheaper or free online alternatives such as Google Apps, Microsoft plans to arm a key cohort of its formidable legion of partners to help fight the threat to Office 2.0.

Microsoft plans to test a yearlong change to a key part of its license for Office 2007 that will, according to multiple sources, enable Web hosting service providers to offer Microsoft Office via an emerging technology called application streaming.

The sources said Microsoft will make the announcement early this week during its weeklong Microsoft Management Summit show in Las Vegas.

If successful, the company will likely overcome its long-held fears about hurting its hugely profitable Office business and make the change permanent.

Microsoft "has been sensitive to whether it would cannibalize its own application business," said Neil Gardner, a vice president of marketing at application-streaming software vendor Endeavors Technologies. "They were also sensitive to the piracy side of it, of losing control over distribution."

Such a change could mean that Microsoft, with the huge data centers it is building, will start to stream Office directly to its customers, too.

It will be the second announcement by Microsoft this month that showcases its determination to fight growing competition from Google Docs, Yahoo's Zimbra, Zoho Office, ThinkFree and similar services.

Last week, Microsoft confirmed that it is beta-testing a low-end Office bundle, code-named Albany, that it will offer on a subscription basis.

Microsoft did not respond to a request for comment.

Talk is cheap; is the service?

News of the license change had already leaked out among members of Microsoft's hosting partner community, which had been campaigning for it for the past several years.

"What was frustrating for us was that Microsoft allowed Terminal Services for Office but explicitly disallowed application streaming," said Gardner, whose company is trumpeting the news on its Web site.

But others warned that Microsoft will have to price streaming Office low enough to make it competitive with the paid Enterprise version of Google Apps, which offers technical support for US$50 per user per year, and competitive too with the free offerings.

"Why would a [small business] go out and pay an arm and a leg when they can get Google Docs or OpenOffice for free?" said Ty Schwab, CEO of Blackhawk Technology Consulting, a reseller of application streaming software. The price "has got to be close if Microsoft wants to make itself a force to be reckoned with."

Fording the streaming

Office 2007 as a streamed application is more similar technically to Google Apps than Albany, though all three share a subscription model.

While some of Albany's components, such as the Office Live Workspace file storage service and the Windows Live OneCare security service, are delivered through the Web, the core Office 2007 software will still be installed locally on users' PCs.

By contrast, a streamed version of Office would be stored on a server at a hosting provider or enterprise but delivered bit by bit to users on demand through a local network or the Internet, just as streamed music and video are.

The software code will be stored on the local PC and persist even after a user logs off. That means that while opening Office for the first time may take 4 minutes or more, subsequent start-ups should take only 10 to 20 seconds, Gardner said.