It will recommend using the Web applications in conjunction with Office on the desktop, as a way for people to share documents without having to e-mail them back and forth, and to access documents when they are away from their PC -- on a mobile phone, for example. For serious, heavy editing tasks, it believes people will still want the client version of Office.

"With Workspace we're focused on that lightweight editing," Hutchinson said. "You can do text, formatting, and move things around, but when you get into rich graphics editing, much longer documents or writing a letter to the CEO, you'll probably want to be on the PC."

Nevertheless, users will not be required to have a client Office license to create documents using the Web applications, Schultz said, and the service will continue to be free for consumers, supported by advertising.

Forrester analyst Sheri McLeish said it's not surprising that Microsoft would offer document creation and editing through Live Workspace, since Google and others have challenged it with basic, more cost-effective productivity applications.

"You have a lot of alternatives that are SaaS [Software as a Service] or lightweight versions [of Office], and [Microsoft] doesn't have many ways they can compete with those offerings," she said. The alternatives appeal particularly to smaller businesses, where Microsoft "is not competing very well on a cost basis," McLeish said.