"No translator will be perfect. OpenXML we believe is more fully-featured than other XML formats. So some formatting will be lost in the translation," Paoli said.

Until now, Microsoft has publicly declined to make OpenXML compatible with ODF, saying any such move would stifle its own innovation. But Robertson admitted that the company had been discussing that option with government customers for months.

Besides bankrolling the project, Microsoft will only provide technical assistance. In other words, the project is fully open-source and not run by the company.

"Clever Age is the owner of the project, but as in any good open-source project, anyone can participate, anyone can modify or develop on top of it. We are not a gatekeeper in any way," Paoli said. The plug-ins will work with the upcoming Office 2007, as well as for older versions of Office, he said.

Paul DeGroot, an analyst with Kirkland, Wash.-based Directions on Microsoft, said that while Microsoft's move was "inevitable," it goes against the company's normal tactics.