In a move anticipated for some time, Microsoft has announced that the next incarnation of its ubiquitous Office software will include free web based versions of several of the suites popular applications. Although late to the party, Microsoft’s foray into online applications- which have now entered the technical preview phase - is set to put the squeeze on well established online office suite rivals like Google and Zoho.

With Google recently announcing plans to release a free operating system and Microsoft introducing its new Bing search engine last month, competition between the two is intensifying. Microsoft is not only touting enhancements like smarter spreadsheets and email management with Office 2010, but also online benefits such as co-authoring the same Word document simultaneously.

The Office Web Applications of Word, Excel, PowerPoint and OneNote will be full lightweight versions of the products and will be offered free of charge as part of the Windows Live service, which currently has more than 400 million users. However, use of the online software is not limited to Internet Explorer, with demonstrations showing it will work with Firefox and Safari browsers as well. Microsoft is planning to release their web based versions of the software at the same time as the roll out of Office 2010 in the first half of next year.

Embracing the use of cloud computing, the software maker also plans to launch a fee - based online subscription service. Small businesses are to be charged a fee to host an internet version of Office at Microsoft’s own data centres, while companies with premium service contracts would be offered a second web based version from their own data centres at no extra cost.

Analysts predict that hundreds of millions of consumers that already use Microsoft Office will be only too keen to try out the online version, slowing Google’s market penetration in the process. Although releasing free web based software may initially see a dent in Microsoft’s overall profits, they believe this type of strategy may benefit Microsoft in the long run with many consumers and businesses expected to make the upgrade after sampling the programs online.

Microsoft recently announced that Office 2010 has reached the technical preview stage and tens of thousands of people are now being invited to test the software in the lead up to its release.

Head to the Microsoft preview site for a more detailed look.