For instance, Google Spreadsheets, can read and write files in Excel format and handle many basic calculations, though it can't understand advanced Excel commands such as macros. But the software can let up to 10 users simultaneously edit a spreadsheet, while chatting via an adjacent instant-messaging window.

That trumps the back-and-forth e-mail exchange of documents -- with changed areas highlighted in red -- that most Office users are forced to do today.

"I believe Web-based applications from a variety of providers, like Google's new Spreadsheets, will represent a significant challenge to Microsoft Office 2007," said Jeff Kaplan, an analyst at ThinkStrategies Inc. "Rather than invest in a new software suite, many users may choose to take advantage of software-as-a-service alternatives."

Microsoft is making collaboration features a prominent part of its upcoming Office 2007, due out by year's end. Many of those features, however, will require companies to deploy and support additional back-end software, such as SharePoint 2007.

Microsoft has said it will make some collaboration features available via its Office Live, though it has stopped short of replicating any of the features in its Office software for fear of cannibalizing sales.