With Windows Azure and Office Web Applications, Microsoft is moving its crown jewels into the cloud--sort of. Its tentative moves aren't enough.

The cloud version of Office is a trimmed-down version of Microsoft's desktop applications suite with online collaboration added to it, while the Windows Azure cloud operating system is a limited implementation of Windows Server. Neither will be out until later this year, at the earliest.

What Microsoft really needs to do is introduce a full online Office suite within months of the release of Office 14, and tweak Windows Azure so it can run standard Windows Server apps in the cloud. Cloud-based features such as Windows Live Mesh should be standard on Windows 7, and Microsoft should commit to offering its Dynamic ERP and System Center management apps as online services, as it has hinted it might. Though it's pushing software-as-a-service versions of Exchange, SharePoint, and Dynamics CRM, overall it's ceding leadership to others in online software.

Chief software architect Ray Ozzie said last fall that cloud computing touches every product group inside Microsoft. But don't expect Microsoft to rush into the cloud, as Ozzie said enterprise customers remain wary. Describing cloud computing as neither panacea nor "something people should fear," he said customer concerns include security, data control, and reliability.

But Microsoft's window of opportunity could close. Some companies are giving their employees a choice of using Google online apps or Office. Small businesses increasingly are using Web applications instead of on-premises software, and startup developers are tapping into other vendors' cloud services.

	Ozzie won't rush it.

Even when Microsoft releases Office Web Applications with Office 14 this year, it will only go so far. People will be able to edit Word and Excel documents online and do some real-time collaboration, but they won't get all of the features of the client apps. Microsoft won't say whether Excel-as-Web-app will run macros vital to many spreadsheet models. Google and Zoho both offer basic macro support.

With Azure, Microsoft's putting Windows Server into the cloud, but the transition won't be as easy as it should. Developers must write new apps or re-write old ones to run on Azure.

For all its chatter about "software plus services" and the billions it has invested in new data centers, Microsoft's customers might be ready for cloud computing before it is. If Microsoft wants to lead the way into cloud computing--and it should--it needs to move more aggressively with its considerable talent and assets.

Illustration by Sek Leung

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