A top Microsoft executive defended desktop application software, the source of the company's revenue for three decades, arguing that even services-based companies such as Google still need it.

The comments by Jeff Raikes, president of Microsoft's business applications division, come as Microsoft is trying to position itself as a company capable of delivering applications over the Internet as well as on PCs, its traditional distribution model.

"It's interesting some our competitors who like to espouse the idea that software is dead," said Raikes said. "I think they're worried that actually people like a lot of what they have at their fingertips and the real success is to use a combination."

Microsoft has come under increasing pressure from companies such as Salesforce.com, which specializes in Web-based CRM (customer relationship management) applications and Google, whose Docs suite is an online alternative to Microsoft's Office suite. Web-based applications tend to be cheaper, easier to update and require little installation since applications are delivered through a Web browser.

Raikes claimed during a keynote to about 3,300 customers and partners at its Convergence conference that only Microsoft can deliver "the best of the traditional software model in combination with software as a service."

Later, Raikes said Google realized its Web-based applications need further enhancement on the desktop by introducing Google Gears, a set of open-source tools to build applications that can run offline and then sync when a computer comes back online.

"It's fascinating to me to see that even some of those companies now are trying to backtrack on what we've been saying and to offer things like Gears in order to be able to be offline and or take advantage of global computing power," Raikes said.

Microsoft is using the desktop products such as Outlook e-mail and Internet Explorer as the user interface for hosted versions of its business applications. The big push at the Convergence conference is for the forthcoming release of Microsoft Dynamics CRM 4.0, previously known by its code-name Titan. It will come in both on-premise and hosted versions.

Microsoft, which started its business applications division in 2001, now has 475,000 users of its CRM products in 11,000 customer companies, Raikes said. In its fourth quarter, Microsoft added 85,000 new users, he said.