Microsoft recently unveiled a strategy for Web services based on its flagship Windows and Office products.
The company will offer "Office Live" to help small and midsize businesses use and maintain the suite of software used for applications such as e-mail, scheduling, spreadsheets and word processing.
"This is a big change for everybody," Microsoft chairman Bill Gates said in announcing the move. "It is employing every part of the (software) ecosystem."
Analysts are divided on the new approach by Microsoft, which will initially support the services through advertising but may eventually go to subscription models.
Carmi Levy of the research firm Info-Tech said Microsoft's announcement means "the end of shrink-wrapped software in a box and the start of the Internet-based services era. It marks a turning point in the industry."
Levy added that Microsoft "could not afford to sit by and do nothing while Google and Yahoo established themselves in that market (as leaders) in Web services and advertising."
Analysts said Microsoft needed to offer a Web version of its Office software -- including word processing and spreadsheets -- to counter a move by Google and Sun Microsystems on the open-source rival called OpenOffice developed by Sun.
Although Microsoft's Windows operating system is used on more than 90 percent of the world's personal computers, the company has to fear efforts to circumvent Windows by going directly to the Internet.
This system would allow customers to use word processors or other applications on the Internet and store documents on a secure website instead of on a PC drive.
Jason Maynard, an analyst at Credit Suisse First Boston, said: "With this event, it's apparent that Microsoft understands the reality of the Web as a platform (for) user-centric computing and advertising-based business models."
Maynard added: "While much work needs to be done, we were impressed with the thoughtfulness and broadness of the offering. This event marks the real start of the 'on-demand' battles."
The move revived an attempt made several years ago by Microsoft to expand its Internet services in a program known as .NET, or "Hailstorm," that floundered amid privacy concerns about its authentication process, called Passport.
Joe Wilcox at Jupiter Research was more skeptical about the latest Microsoft strategy.
"Advertisers looking to extend their brands might think twice about being associated with products that could create disgruntled customers," Wilcox said.
He noted that consumers "may not be as forgiving" about glitches in the services.
"In the offline world, there are huge expectations about services like water, electricity and telephony working right," he said. "People get mad when the lights go out. If the online services don't deliver, switching brand affiliation would be as easy as switching services, and there are plenty of places offering the kind of stuff Microsoft plans for Live."