According to Reuters, the new suite will be available to members of the Windows Live service, and will feature stripped-down versions of the Word, Excel, PowerPoint and OneNote programs. It is meant to compete with Google's existing Google Docs service, and comes the week after Google announced plans to launch an operating system that will compete with Windows.
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The key thing is what "stripped down" means. And moreover the main competition isn't from google docs, it is from open office.
Will be interesting to see how microsoft proceeds on this one.