Microsoft Corporation (NASDAQ: MSFT) has two main cash cows at this moment: Windows and Office. Together, those two pieces of software (in all their iterations and versions) bring in the lion's share of revenue to the software maker. We're talking about tens of billions per fiscal year. Looking around the globe, there are free alternatives to both of those software franchises, though, which makes one think: why doesn't everyone use the freebies and stop paying for Microsoft's two big products?

The answer is bit complicated, so we'll attack the "Windows" question first. Microsoft licenses out the Windows operating system to almost all computer makers who then install it on the PCs they sell to the public and businesses (and everyone else). No customer probably told Dell Inc. (NASDAQ: DELL) or Hewlett-Packard Company (NYSE: HPQ) that they wanted Windows -- there simply is no choice when buying a PC. Recent advances by Dell to make the free Ubuntu Linux operating system available on some PCs has happened, sure. But, the majority of the public just wants what they are used to, which is Windows. People love change, right? Wrong. There are then many (many) versions of Windows for servers and workstations that are sold as well.

Let's turn to Microsoft Office. Again, it brings in a ton of revenue to Redmond, even though there are full office productivity suites that compete with it. My guess is that many of you can't name one though -- and that is what Microsoft counts on, which is branding power. The full-featured OpenOffice productivity suite is pretty darn impressive (I've used it), and it's completely free and interoperable with Microsoft Office (not sure about Office 2007). Why don't more people use it then? Lack of knowing it exists is a possibility, and having to download the suite or order it for about $10 on CD may be obstacles. Plus, you can't find it on Best Buy shelves. If customers start becoming smarter and find out out about OpenOffice or even Google Inc. (NASDAQ: GOOG)'s Google Apps, could a large piece of Microsoft's kingdom come crashing down?

[Disclosure: I own MSFT shares as of 5-29-07]

Google Inc. (NASDAQ: GOOG) continues to subtly press its office productivity software into the hands of the masses, consumers and businesses. And yet, the company continues to say it is not targeting, as a whole, Microsoft's Office franchise, which requires a decent chunk of cash to purchase as well as installation on a PC (or network) to function.

Google's Gmail (email), Calendar (scheduling), Docs (word precessing) and Spreadsheet (calculations) require nothing but a web browser and an internet connection, while giving many "light" users the same capabilities as the Microsoft Office package. All for free. Will Google's services remain free? Who knows. One thing is clear -- it's incredibly difficult to give something away for free, then start charging for it in the future.

Google is now packing its services for internet service providers (ISPs) and other web-based portals what have millions of customers as a way to get that package of productivity software out into the hands of even more users. Its Google Apps Partner Edition packages all of the above-mentioned applications and more to give Google internet partners a complete bevy of web-based applications they can offer customers as a value-added service. Google even offers a pay edition ("Premier") that promises guaranteed availability and more email storage than its free editions. Will customers pay for the upgrade? These efforts are icebreakers for Google in seeing if it can create a revenue model off service subscriptions and outside advertising.

Google Inc. (NASDAQ: GOOG) is the indisputed leader of internet search -- there's no question about that. Although I don't see the company being unseated any time soon by Yahoo! Inc. (NASDAQ: YHOO), Microsoft Corporation (NASDAQ: MSFT) or Ask.com, can the company continue to safely make all its cash from text ads on the internet? Google realizes that this probably is not wise over the long term, hence its recent spate of acquisitions and partnerships that will ingrain it into as many advertising avenues and mediums as it can muter.

What about other products? Google Apps, which includes spreadsheet and word processing software (but for the web only) is now integrated into the company's tagline, which reads "Search, Ads and Apps." Does that say anything about what Google is planning? Most likely, it does. Search is the base of the company right now, which is wildly successful and is bringing the competition to its knees. Ads is an area that probably reflects Google's intentions to monetize anything it can with advertising that is relevant and not annoying to its customers. But, "Apps?" Google Docs and Google Spreadsheets were just launched last year, and have received a mild uptake so far, but it that a pillar of Google's future?

According to Google CEO Eric Schmidt, it is. Could Google be trying to dent Microsoft's market share for office productivity apps (except for demanding business users) with its free, web-based software? Sure it is, even if the company is not saying it. If it can make money monetizing its web-based applications to within a few feet of what it has done with Internet search, Google's revenue diversification plans will be well-established. Right now, the timing seems perfect for that to start happening, a fact I am sure Google us aware of.

After having read this Q&A with Google Inc.(NASDAQ:GOOG) CEO Eric Schmidt, I am convinced that the company he leads still wants to become the largest advertising network in the world in all channels that it can, even though it was not mentioned in the interview at all. The largest question is how successful its ambitions can end up being outside the web search market. That's a billion-dollar question, my friends.

Google's Eric Schmidt talks quite a bit about how Google's "Google Apps" will take on a portion of the Microsoft Office crowd (in effect, becoming a larger competitor than it already is) along with how Google is going to use YouTube in the future for running advertising around certain socially-networked video files (not clips, which are limited in length).

When Schmidt says the following in response to Google being called a "one trick pony" by Microsoft Corp.'s (NASDAQ:MSFT) CEO Steve Ballmer, something has to be read into it: "But there are some new revenue models on the horizon. The most interesting is probably Google Apps, where we're already beginning to get some significant enterprise deals."

Will Google Apps really bring in that much enterprise revenue in the future? Unless Google gets quite a few large companies using it with a decent subscription model, I don't see Google Apps being anywhere near what Google pulls in with web search advertising. It probably does not need to be that way -- yet.

One thing is for sure -- Google is one of the better companies in recent memory that can say quite a lot about what it does and where it is going without spilling many beans on specific strategies.

Through internal development – and a variety of acquisitions – Google Inc. (NASDAQ: GOOG) has patched together an interesting suite of productivity applications. Now, of course, the company is moving towards monetization.

The suite includes Gmail, Calendar, Talk, Start Page (to create web sites), and Docs & Spreadsheets.

No doubt, this was widely anticipated, but Google has a lot of savvy in building suspense – so as to maximize PR value.

As for its latest offering, the focus is primarily for business users and the pricing is $50/user on an annual basis. This is actually fairly cheap. Keep in mind that salesforce.com, Inc. (NYSE: CRM) averages about $68/user on a monthly basis, albeit for a more robust system.

What is poised to happen when Microsoft Corporation (NASDAQ:MSFT) releases the retail versions of Windows Vista and Office 2007 insofar as software piracy? There have been talks from Microsoft's most senior-level product and security officers on the specific safeguards that the world's largest software supplier will have in place to ensure that the newer software -- which combined pulls in the bulk of Microsoft's software -- will be as accessible to customers as possible without being easy to pirate, copy, mass-counterfeit -- what have you.

Hackers and software crackers have almost always had the seemingly-immediate capability to remove software and hardware anti-piracy protections from almost any piece of software imaginable, and almost as soon as the software shipped. In fact, the rate of undoing anti-piracy checks should make software makers spin in their offices. And, probably does to a large degree.

With license keys, activation checks and the newer "Windows Genuine Advantage" program, Microsoft has some formidable weapons to fend of the pirates of its software. But with Windows Vista and Office 2007 just about out on shiny retail shelves, the battle will once again heat up between Microsoft and, well, the rest of the world who wants to buy a single copy of either piece of software and install it wherever and whenever they please.

Will Microsoft mount a defense to the just-announced Google Apps suite of web services? More importantly, is Google gunning for more than Microsoft as it rolls out more pieces of the Google Apps suite in the coming year? Symantec? Intuit? Anyone is up for game against Google and its apparent voracity of trying to be everything (possibly) to everyone -- all over the Internet and all though a single, billion-dollar vessel -- the web browser.

Microsoft does not have to worry -- at this point, at least. Its Office franchise, while complex and expensive compared to Google's streamlined and free offerings, are also a way to keep data private and secure on company networks (and in homes). The trust issue that will inherently come up with Google's web-based offerings will take quite a virtual handshake to assure potential customers that data used "on the Google network" will have very cohesive semblance of privacy and security.

What about product quality? Microsoft's Office franchise has the perception that many useless features are added just to give the company an excuse to release another version (and to grab more consumer and business dollars). But, it's hard to say of Google Apps will have the robustness of a Microsoft Exchange server arrangement for email and calendaring, and Microsoft Excel, at this time, is legions ahead of the simplified Google Spreadsheets product.

But, Microsoft cannot rest on its laurels -- Google will be improving these products most surely, and the competitive strife will only tighten up further. Microsoft can innovate and keep an edge or, well, not. But, with its Office franchise bringing in billions every year in revenues, Microsoft has little choice in the matter.

[Disclosure: I own MSFT shares as of 8-29-06]

Back in the 1980s, when Microsoft was building its empire, the company built separate applications (such as Word, Excel and so on). Then the company did something powerful – combining the applications into a suite. Of course, now Office Suite is a huge cash cow for the company.

No doubt, Google would like to do the same thing with its growing number of applications. And we got more evidence of this today; that is, the company is bundling email, IM and scheduling into a combined offering. It's called Google Apps. Expect the suite to get bigger, with the inclusion of a spreadsheet and word processor.

In fact, Google is targeting the business and educational markets – which is a further encroachment on the Microsoft Office franchise.

The really cool thing about Google Apps is that you can use your company's domain name. In fact, Google is planning to develop a fee-based version for larger companies.

I talked to Reid Conrad, who is the CEO of Near-Time, which develops online applications for small and midsize companies. According to him: "On demand application services are becoming increasingly mainstream in the business software industry. Google will accelerate the transition. Hosted applications increasingly make sense for organizations of all types and sizes. Client applications are far too static for the fluid needs of businesses today. While most of the focus has been on the ease of use, the real win is the integration of application services and content. Business software vendors who don't have a hosted story had better find one soon. Google's move is just the beginning. Also, as this sector matures, business models will clearly be moving from advertising to fee based services. Most businesses could do without the commercials."

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.