Can Redmond rivals storm the Office stronghold?

After years of watching Microsoft rake in billions of dollars from its desktop software franchise, its competitors are pouncing.

IBM has announced the release of Lotus Symphony, a suite of free desktop applications based on the OpenOffice.org open-source product.

The computing giant, which has been challenging Microsoft's desktop dominance for years, said Lotus Symphony is a standards-based alternative to Microsoft's proprietary Office.

Separately, Yahoo! said it paid $350m to acquire Zimbra, a start-up that developed a web-based email and collaboration package comparable with Microsoft Exchange and Outlook.

Meanwhile, Google has introduced Google Presentations, an online version of Microsoft's PowerPoint presentation application that complements Google's web-hosted document editor and spreadsheet.

The flurry of investment in productivity software points to technology and business changes in the IT industry that are making Microsoft's cash cow vulnerable to alternatives, particularly among small businesses and consumers.

But don't expect Microsoft coffers to start draining tomorrow. Analysts expect Microsoft to retain the great majority of its Office customers as it adjusts its product development to the web and open source, even as competitors try to siphon off its Office revenue.

Michael Silver, an analyst at Gartner, said referring to two recent Microsoft setbacks: "I think there's some blood in the water between Microsoft not getting its Open XML [Office document formats] fast-track standards approval and the European Commission ruling."

Microsoft failed to get its Office Open XML formats certified as ISO standards through its accelerated process earlier this month. Earlier this week, the European Commission ruled in favour of regulators in an antitrust case that could change how Microsoft does business in Europe.

Microsoft has shown some signs of reacting to the ramped up activity it's seeing from competitors.

Last week, it made a version of its Office suite available to students for $60. It is also developing Office Live, a set of online services that complements Office and is aimed at small businesses.

A Microsoft spokesman said Office meets its customers' needs because the company continues to invest in it.

Jacob Jaffe, director of Office at Microsoft, said: "Competition is good for the industry and good for customers. That said, Microsoft Office continues to be the overwhelming choice for a broad range of organisations and individuals. Microsoft Office has changed as people's work has changed, and the alternatives for the most part have aimed to meet the needs of the past."

Chris Swenson, a software analyst at NPD Group, said the most recent sales data on Office 2007 looks very good for Microsoft. In the retail channel, sales to date this year show Office having a 96 per cent dollar share and 98 per cent dollar share in the commercial market.

It's exactly that massive market share and the billions spent that explains IBM's introduction of Lotus Symphony and web-based Office alternatives, said Gartner's Silver. He added that he has seen more "reasonable interest" in Office alternatives in the past year among Gartner's corporate clients.

Microsoft "makes billions of dollars [in desktop software] so it's a hard market to ignore," he said. "But it's a hard market to get into."

Martin LaMonica writes for CNET News.com