Google Inc (NASDAQ:GOOG) spent over six years promoting the idea, now its software for businesses, Google Apps, is rapidly cutting into Microsoft Corporation (NASDAQ:MSFT)’s fort – businesses. Google Apps is a cloud-based application software for collaboration, document writing, video and text communications. The software isn’t installed on office workers’ PCs.

Google Apps

Google VP Amit Singh told AllThingsD during an interview that this product will appeal to tech start ups and small businesses. He said, “Our goal is to get to the 90 percent of users who don’t need to have the most advanced features of Office.” However,  Apps is also attracting large enterprises. Last year, Google Inc (NASDAQ:GOOG) added Hoffmann-La-Roche, which has over 80,000 employees using Google Apps, and Interior Department, where 90,000 workers use apps, in its client list.

Customers are impressed because Google Inc (NASDAQ:GOOG) is offering a number of important features at a much cheaper rate. Google charges only $50 per user and hasn’t changed price since its inception despite adding many more features. For example, this year Google added features that allow employees work offline, they also improved data management and security practices to meet sophisticated European standards. With this, more multinationals are interested in the Google product.

On the other hand, Microsoft Office suite is installed on  user’s desktop or laptop. Its price for businesses will be $400 per use in 2013. However, most businesses pay less by negotiating a bulk deal. Unlike Google Inc (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT) keeps raising prices when it adds a new feature or service. For example, the Office suite 2013 will cost $50 more than its previous version.

Microsoft Corporation (NASDAQ:MSFT) has also tried hands at cloud by launching Office 365. Its list price of $72 per user is still higher than Google’s $50. In a recent report, IT research firm Gartner called Google the “only strong competitor” to the world’s largest software giant. Google has maintained silence over the number of users of Google Apps. However, a former Google executive said on condition of anonymity that Apps generated $1 billion revenue for Google in 2011.

Surprisingly, Microsoft Corporation (NASDAQ:MSFT) is not worried about it. Julia White, a general manager at its enterprise division said that Google is basically an advertising company, and isn’t yet serious about enterprise software. She also argued that most companies don’t like cloud storage for documents and communication. Ms. White said, without disclosing numbers, that Office 365 is on its way to become Microsoft’s fastest growing business.

However, a report by General Services Administration said that Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG) competed for 42 federal contracts in 2012. In which, Microsoft won only 10 deals and Google grabbed 23, the remaining deals went to Zimbra.

Business division is the most profitable unit of Microsoft. It generated $24 billion in revenues during FY2012, and a negligible part of that came from Office 365.

What do you think? Is Google really a big threat to Microsoft?