Antoine Leblond, who became co-leader of the Office group in June, said Google was the latest in a long line of challengers to the Office software suite, which includes Word documents, Excel spreadsheets, Outlook e-mail and PowerPoint presentations.
"The simple argument that 'this is good enough for 90 percent of what we do' has fallen on its face over and over and over again," Leblond told Reuters in an interview on Tuesday. "When it comes to mission-critical things and key pieces of how people run their businesses, the threshold is higher."
Leblond and Kurt DelBene took over the Office group . Leblond oversees what he calls "old school" applications like Word, Excel and PowerPoint, while DelBene oversees the new SharePoint Web collaboration software and other server-based programs.
Microsoft will releaseto business customers next week along with its , which has been more than five years in the making. These products are the core of a broad product upgrade cycle aimed at restoring the software giant's growth.
Microsoft believes new Web services will work in tandem with PC-installed software, a vision that differs from that of "software as a service" advocates, such as Salesforce.com and Google, who expect services delivered over the Web to eventually replace software that resides on local PCs.
It's a bet with big stakes, considering Office accounts for nearly a third of Microsoft's total revenue and half its profits, and particularly since the company has been unable to replicate its desktop success on the Internet.
Already the clear leader in Web search, Google has in recent months pushed out new applications to rival individual Office programs, including e-mail for organizations, employee Web pages, scheduling, spreadsheets and word processing.
Google Chief Executive Eric Schmidt has, saying his company is focused on simple applications with an emphasis on sharing that are aimed at consumers and small business users.
"Free software has an appealing ring to it, but free software has been around for a while now and it turns out free doesn't trump the software doing what people need it to do," said Leblond, a 17-year veteran of the Office team.
Microsoft's new Office Live is an example of its "software plus services" approach. It lets small businesses set up Web sites, company-branded e-mail and Web applications to allow project management and collaboration. It works with Office but the programs are largely different from those familiar to desktop PC users.
The latest upgrade, Office 2007, will be available to consumers in January, but Leblond said don't necessarily expect a huge spike in demand, as adoption patterns have changed.
"We went from the world of 15 years ago where we would release the software and people would be sleeping outside the stores to go buy the boxes the next day to a much more regular rhythm," said Leblond, adding that customers now base purchases more on multiyear technology cycles.