Redmond (WA) - Reuters this morning reported that Microsoft could soon be offering free online versions of its word processing and spreadsheet applications from its "Works" suite of applications. The online would be supported by ads embedded into software - much like Google Spreadsheets and Writely.

Microsoft has a huge dominance in the market for business applications, but the high price for their software suites can be a hurdle for some small businesses as well as low-income and emerging markets. And while the company more or less ignored free Office packages - such as Open Office - in the past, Microsoft may need to go more aggressively about a new mass market that cannot support a $100 price tag for a software package that allows basic editing of text and spreadsheet documents.

Google has demonstrated a possible model for such markets: Much like Adware at the beginning of this decade, the purchase price of software is subsidized by advertisements. Google Calendar, Spreadsheets and the word processing application Writely are all in Beta at this time and are expected to be fully financed by advertising once the final versions are released.

A screenshot of Google's Writely software

"We're also thinking about how we might take advantage of new business models like advertising and other payment models, as well as new forms of distribution," said Alan Yates, general manager of Microsoft Information Worker Business Strategy, in a conversation with Reuters. Of course, Microsoft is treading tricky water here, because a free, ad-supported version of Works potentially could hurt retail sales of their ad-free business software products, a crucial part of the firm's revenue base. A new version of Office is expected to be released early next year.

Not surprisingly, Microsoft has a lot more experience with word processing and spreadsheets than Google. The over-simplified products that Google offers online do not give users the same level of productivity that Office users have become used to. Writely, for example, has no mail merge feature, the layout view cannot be changed, and there is no ability to add special images like WordArt or AutoShapes. For basic writing, though, it feels exactly like Word. Things like formatting quick-keys (e.g. ctrl + b and ctrl + x), spell-checking, bullet points, and font/color changes, are all available.

Google Spreadsheets is very ineffective for large data sets, compared to Excel. While it does have formatting and basic formulas identical to Excel, Google's offering does not allow for easy formula mapping, there is no option to create a chart, and because everything's stored on Google's server, there is a lag every time a new value is entered into a cell.

However, what Google Spreadsheets and Writely offer that most Office owners can't do is online sharing and collaboration. Google makes it easy for the document creator to add new people to the list of people who are allowed to access and make changes to the file. With real-time Internet communications becoming increasingly important, submitting of word processing documents back and forth through e-mail has become about as primitive as snail mail.

The new Internet version of Microsoft Works may be just as much about promoting online collaboration as it is for offering a cost-effective product to consumers.