This is a good thing in my book.
It's a good thing because of my philosophy. I want better software. Competition brings better software. It gets product managers to worry about customers. It causes discussions of features that were long-ago decided on.
You're watching two massively different ideas about how computers should be used battling it out right on the world's economic stage.
On one hand you have the old standard Office that says "load locally and use local resources."
On the other hand you have the new, fresh and clean, Google Office that says "load on the server and use a thin client, er browser."
I know which one I'm betting on. Why? Perspective. Even with my always-on-$80-a-month Verizon card getting to Network resources is still far slower than pulling them off of the hard drive. And, that'll remain true for a long time. Also, the Web browser simply doesn't have the API support to do really rich stuff.
Which predicts where Google and Microsoft will really battle it out: in the middleware.
Ahh, middleware 2.0 wars coming soon to a browser near you. Why? Cause as Google gets more people to try its spreadsheets more people will ask for more features. If they don't get those features the PR will turn back toward Microsoft's approach (since our Office has a lot more features than Google's offerings do). There will be pressure on at Google to add features but DHTML (er, Ajax) will simply run out of gas. So, you'll start seeing middleware coming down. (Runtimes like .NET, Flash, Java, and WPF, are what I'm thinking about — I'd bet that Google is working on a browser-runtime of its own that'll add a lot of local functionality to Web clients).
On the other hand, we're going to feel pressure to add online functionality to our Office suites. You're already seeing us respond to that pressure (Sharepoint added RSS, Blogging, and Wiki's in its next incarnations).
All this is great for customers because they'll have a lot more choices again. I agree with Don Dodge that right now there's a clear winner in this battle, but I'm not cocky enough to believe that Google won't figure this out long term. There are too many smart people over there for us to not take this threat seriously.
That said, I finally have switched to Windows Vista and Office 2007 on my main working machines and, wow, is Office 2007 getting underhyped. If I was a Microsoft product manager over on Office I'd send every blogger a free copy and say "please compare to Google Office." I'd love to see the blog hype if we did that.
Update: Dan Farber sees the two approaches as complimentary, not competitive. That's an interesting way to look at it too. Joe Wilcox is worried that Microsoft will get distracted by Google. Oh, I don't think we have to worry about that too much. I worry a lot more that both of our companies are missing the small things. Believe me, if the CTO of General Motors wants a feature in Excel, he or she will probably get it. Google can't distract us THAT much. But, what things are we missing? What are the opportunities that are bubbling up that we don't see?
Update 2: Vadivel Mohanakrishnan reminded me that there have been online spreadsheets for quite some time. Zohosheet has one, for instance. The thing is, I'm very unlikely to give even a big company my corporate data, but far far far less likely to give a small company that stuff. Why? What happens if they go out of business? That shows the market forces that'll bring most Web 2.0 apps into one of the big three companies.