Does Google buy spell Office challenge?

Google has acquired the online word processing company Writely in a move that could bring the search giant into even closer competition with Microsoft.

The acquisition sees Google gain another foothold in the online productivity application space, an arena in which Microsoft is attempting to position itself in with Office Live.

Google's acquisition was announced on both Google's and Writely's blogs on Thursday. Google confirmed the acquisition in a statement. It said: "We acquired Writely for the innovative technology and talented team. We're thrilled to have them here."

Writely is a hosted word processing package that allows users to edit and publish documents online. The package was created by Silicon Valley software development company Upstartle, which was started by three software engineers Claudia Carpenter, Steve Newman and Sam Schillace.

The Writely web ite states: "We've heard it called a 'web word processor' and a 'wiki with permissions'. Both descriptions work for us but present only the start of the story. Yes, Writely is a web-based, collaborative document editor but it's also a service in its infancy."

The move follows speculation about whether Google intends to take on Microsoft's Office productivity suite in some shape or form. Last October, Google's partnership with Sun set off intense speculation that the companies would collaborate around OpenOffice.org to create a hosted applications suite. But the two companies merely announced that they would work together on OpenOffice, Java, OpenSolaris, and Google's Toolbar.

The acquisition of Writely will no doubt reignite rumours that Google plans to take on one of Microsoft's key technologies.

In November 2005, Microsoft chairman Bill Gates announced plans to launch new internet-based complements to its core products. Microsoft is working on two products, Windows Live and Office Live that create opportunities for the company to sell online subscriptions and advertising. Both are targeted at smaller businesses and consumers.

Writely's founders admit their product is still in its infancy but claim that by working with Google they will be able to develop the site into a more mature platform. Upstartle stated: "Writely is like a caterpillar that we hope to make into a beautiful butterfly at Google."

However, Upstartle are keen that the acquisition will not cause too much disruption to existing users. The group stated: "The Google announcement will undoubtedly generate a lot of interest in Writely - perhaps too much - and we're committed, on [our users'] behalf, to keeping our current service running smoothly."

Andrew Donoghue writes for ZDNet UK