Despite their potential merger, Microsoft and Yahoo are still going after the same customers.

Both companies have announced a series of moves in recent weeks aimed at shoring up small businesses. Microsoft has made changes to its licensing model and upgraded Office Live, while Yahoo created a cheap Web hosting service and upgraded the Zimbra collaboration suite.

Microsoft is making a big push this year to expand its presence in small businesses -- much of that with online services -- and has fired the most recent volleys in the battle for small business customers, introducing the second version of its Office Live Small Business suite on Monday.

"We want to be sure we're arming small businesses with the resources to be successful," Cindy Bates, Microsoft's general manager for U.S. small business, said in an interview.

The new version of Office Live Small Business includes free Web hosting, document collaboration and Web site building plus a custom domain name and 100 e-mail addresses free for a year. Other additions include a $39.95 per month e-commerce offering called Store Manager that lets small businesses set up online stores at both their Web site and eBay, an e-mail marketing feature, a keyword advertising manager. Office Live Small Business also now works with Firefox.

Microsoft and partner Cbeyond also launched a hosted e-mail service on Monday that's aimed at small and medium-sized businesses as part of a larger communications package. Rather than being based on SharePoint, as Office Live Small Business is, the Cbeyond offering is based on Microsoft Exchange Server 2007.

All this is part of a larger push over the course of this year aimed at increasing Microsoft's penetration in small businesses. Later this year, Microsoft promises announcements about its hosted CRM Live suite, and this summer the company will release the next version of Small Business Server, code-named Cougar.

In addition to product changes, Microsoft is giving small businesses new options on how to buy. On March 3, the company will launch "open value subscription," a three-year lease of software that's priced by use, rather than by the number of licenses a company owns. Through the end of June, Microsoft will also be offering a bundle of much of its small and medium-sized business software called the "Big Easy Offer" for up to 22% off the price it would cost to buy all the software separate.

Yahoo, meanwhile, is making a few moves of its own. Last week, the company began offering unlimited hosted storage capacity and bandwidth available for $11.95 per month, whereas that had only gotten 5 GB of disk space and 200 Gbytes of bandwidth per month.

The company also released version 5.0 of online collaboration suite Zimbra last week, which Yahoo bought last year. The Zimbra suite's biggest strength is e-mail, but it also offers calendaring and contact management. Aimed at small businesses, universities and ISPs, Zimbra competes with a number of e-mail offerings from Microsoft in different ways.

The overlap of products that Yahoo and Microsoft are offering is indicative of the potential challenges Microsoft would face if it aims up acquiring Yahoo as it intends. Open source Zimbra would be tough to find a niche at Microsoft, while Microsoft may have to pick the best of both its offerings and Yahoo's in terms of online hosting.