Microsoft ponders its Office options

Microsoft isn't quite ready to talk about plans for an ad-supported or online version of its Office franchise. But the company is clearly thinking about it.

The software behemoth's corporate vice president, Chris Capossela, said in an interview at Microsoft's Worldwide Partner Conference in the US: "We've put more of our marketing IQ beyond alternative business models and alternative distribution strategies in the last two years.

"It's definitely something where we feel there is this whole population of people we are not reaching."

Many of those people are in emerging markets, where Microsoft is trying things like pre-paid cards good for two or three months' worth of Office use. But Capossela agreed there is an opportunity to reach consumers in well-developed markets such as Europe and the US as well.

He said: "Office is used by tons of those folks but it's often old versions of Office," adding that the company is actively trying to see whether different ways of pricing or offering Office might prompt more consumers to use the latest technology.

Capossela said: "Would pre-paid cards work in the US? We don't think so but those are the types of questions we try to ask ourselves."

One possibility is to introduce some sort of online productivity options as part of the Office Live suite of software. BusinessWeek reported last year that Microsoft was exploring such a move.

Microsoft won't say for sure whether that's where it's heading, though CEO Steve Ballmer did note in his keynote speech earlier this week that Microsoft will soon rebrand its existing small business Office Live tools as it plans to add services for individuals to the Office Live line.

In its initial incarnation, Office Live has been about making new services available over the internet, primarily email and web hosting. But Microsoft has been grappling for some time now about whether to offer more of its consumer software for free, supported by advertising.

Google, for its part, already offers Google Docs and Spreadsheets, a lightweight, web-based word processing and spreadsheet program, with the company also making moves to expand to presentation software.

Although Microsoft faces competition from Google and OpenOffice - whose offerings are free - it continues to see strong sales in the unit that includes Office. The Microsoft Business Division, largely on the strength of Office, grew its revenue in the most recently reported quarter to $4.8bn, up from $3.6bn in the same quarter a year earlier. Operating income grew to $3.4bn from $2.4bn a year earlier.

Capossela did say the software behemoth doesn't see a distinction between desktop productivity software and web-based productivity software.

He said: "We're very happy to be the leading vendor in the space and we want to continue to be the leading vendor in the space. We look at everything from ad-funded software to web-based software to servers. Long term the way we differentiate from Google, it's the combination of all three: client, servers and services that is the winning strategy."

Ina Fried writes for CNET News.com