"Microsoft has a couple of years' opportunity to respond to this. But it is certainly an indicator of the direction in which Google is headed. And I fully expect [Google] to add more and more features and capabilities into this suite," Driver said.

In the next few years, said Driver, Google will focus on delivering this service to workers who wouldn't normally have access to Microsoft Office.

"But looking ahead a few years, I see this cutting into Microsoft's revenues and I also see it forcing Microsoft to consider alternative delivery mechanisms for its own products—most noticeably software as a service," she said.

Microsoft is definitely going to have to find a way to respond to the challenge posed by Google Apps over the next five years, said Jim Murphy, research director with AMR Research in Boston.

"It is the beginning of probably the most significant challenge we have seen to Microsoft on the desktop, enterprise or otherwise, in probably 10 years," when it was locked in competition with IBM over the Lotus desktop applications, Murphy said.

What do corporate executives think about Google's chances of cutting into Microsoft's Office and Live business? Find out here.

The introduction of Google Apps is "timely," he said, because enterprises will soon have to decide whether they will upgrade to the latest version of Microsoft Office.

Companies of all sizes will likely experiment with Google Apps before they decide whether to carry out the next Office upgrade. "At least it's going to interest CIOs, and they are going to look at it," Murphy said.

"In five years we'll see a more competitive environment" in the desktop applications market, Murphy said. Microsoft will at least have that much time to decide whether it can use its own experience with the Office Live applications to successfully shift into the software-as-a-service model, he said.

One company that decided to make the shift is Prudential Real Estate Affiliates, a Chicago-area franchise that employees 450 sales agents and support staff. The agency has been using Gmail for nearly a year in place of an outsourced e-mail service that performed so poorly that it had to be replaced, said Camden Daily, the group's technology director.

The agency had already worked with Google on the Google Earth and Maps projects, so it used its Google contacts to join the Gmail beta program. "We went ahead and switched, and basically everybody loved the interface ever since," he said.

Daily said he rarely gets complaints from users saying they can't access the Gmail service or are having trouble learning how to use it.

Using Gmail also saves Daily a lot of time and effort in software installation and maintenance. "We're a pretty big real estate company. But we only have a couple of people in our IT department," he said. Since all software updates and patches will be handled in Google's data center, "if a new a new update comes along, I'm not going to have to walk around and touch 50 machines to install it. I don't have to worry about patches, security problems," Daily said.

There is also a lot of interest among the agency staff in using the Google Calendar, he said. But the agency has been holding off until it finds the right synchronization utility for staffers who want to access the calendar with their BlackBerrys and other smart devices.

This article was originally published on eWeek.com.

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