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Adison & Partners is a small yet emblematic part of a major shift in how office software is sold and used.

No, Adison & Partners isn't a Web 2.0 Silicon Valley startup. It's an eight-person executive recruitment company in New Jersey. Its founder and managing partner Jim DiPietropolo doesn't know what a “wiki” is.

This he knows: choosing a Web-hosted suite of communication and collaboration applications has greatly benefitted his business.

Like Adison & Partners, thousands of organizations, large and small, are researching and implementing hosted office suites as alternatives to pricier, traditional options, like Microsoft Office, designed to live in PC hard drives.

Sure, IT buyers, whether chief information officers at large companies, small-business owners or self-employed individuals, must study the options carefully and ask hard questions about these software-as-a-service (SAAS), on-demand suites.

But while “fools rush in” mistakes are bad, an even worse decision regarding the SAAS model is ignoring it. That's particularly true for large organizations.

“Now is the time to definitely have advanced technology folks and strategy people, the ones who look a year or two ahead, to look at this stuff and stay abreast of it, even if the time isn't yet right to purchase,” says Burton Group analyst Guy Creese. “A huge mistake would be to look at the offerings today, say they're immature and then not pay any attention.”

The offerings are uneven, with some suites strong in webmail, while others focus on productivity applications like word processing and spreadsheets. Many key architecture, business and technology questions await answers.

But the SAAS model for these office suites is here to stay. Many big vendors are either openly embracing or likely to enter this market.

Google Inc. is committed with its Google Apps suite, as is Cisco Systems Inc. with the WebEx WebOffice product. Salesforce.com Inc. certainly could stake out a strong position quickly, applying its experience in the CRM (customer relationship management) SAAS market. Several smaller vendors have strong offerings, including Zoho and Zimbra.

Then there is Microsoft Corp., whose inability or unwillingness to come out with a hosted suite comparable to Google Apps many find befuddling. Microsoft Office is the dominant productivity suite in the packaged software.

That may be the problem. Many wonder if Microsoft is struggling with how to develop a hosted version of Office without cannibalizing the suite's packaged software business.

“A challenge for Microsoft is to figure out how to get people to buy the next version of Office if there is also an on-demand version,” says Rebecca Wettemann, an analyst with Nucleus Research.

Another reason for Microsoft's perceived deer-in-the-headlights reaction: “They're not innovating the way they were 10 years ago,” Wettemann says.

However, it's widely assumed Microsoft will respond at some point and have a significant effect on the market.

“I think Microsoft needs to worry about it now because it takes a while to get it right,” Creese says. “In hosted office suites, it's going to take a while for companies to figure out how they want the thing to work.”

In its defense, Microsoft officials have said that Office has steadily gained hosted service components for years, and that combining core PC software with SAAS capabilities is the right approach.

With Office Live, Microsoft offers a set of hosted services for small businesses, like Web site creation and hosting, while Office Online offers Office online resources.

Last week, Microsoft announced a unified installer to help users download updates for its family of Windows Live hosted services. Yet, those who have been waiting for Microsoft to make a power move in the hosted office space found the announcement underwhelming and dismissed it as cosmetic.

While Microsoft mulls its move, rivals like Google continue boosting their offerings.

This week, Google and Capgemini announced that the large IT services provider has become a partner for the workplace version of Google Apps. Capgemini now provides training, support, integration and other services to large organizations that implement Google Apps Premier.

“I'd expect more and more IT services companies will offer that kind of help desk and support around the Google Apps Premier environment,” Wettemann says.

While many organizations ponder SAAS productivity suites, thousands of others have already implemented them, lured by their benefits.

For Adison & Partners's DiPietropolo, the discovery of a SAAS office suite followed a disaster.

Three months after launching his company, his laptop's hard drive, loaded with critical documents, imploded. Recovering the data cost DiPietropolo dearly. He resolved to prevent a similar disaster.

He knew larger companies had server-based back-up systems managed by IT professionals. He assumed the cost of a modest set up would break his budget.

Then the entrepreneur found WebEx's WebOffice, a Web-hosted office suite which, for a monthly fee he finds affordable, gave him what he was looking for.

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