Microsoft Corp. said on Thursday it may offer a free, advertising-supported version of its basic word processing and spreadsheet software, in an apparent bid to fend off a nascent challenge from Google Inc. in the business software market.

Microsoft, which dominates the market for desktop computer software through its Windows and Office franchises, has long resisted offering its software online.

But it faces a growing pack of Web-based competitors -- led by Google -- that is offering similar technology for free with a business model that makes money off advertising.

The world's largest software maker is now mulling how it can move Microsoft Works, a basic suite of business software that often comes preloaded on inexpensive consumer PCs, onto the Web as part of its growing stable of free online services.

Microsoft continues to roll out new online services under the Windows Live brand and it started testing Office Live, a software for small businesses to create e-mail accounts, Web sites and collaborate on projects.

Alan Yates, general manager of Microsoft Information Worker Business Strategy, said the company will consider many options to woo entry-level users.

We're also thinking about how we might take advantage of new business models like advertising and other payment models, as well as new forms of distribution, said Yates.

Revenue from software licenses for Office and the Windows operating system accounts for a bulk of Microsoft revenues.

The challenge for Microsoft will be to make sure a free or, possibly, a subscription-supported version of Works won't hurt sales of its dominant Office software, which accounted for a quarter of the company's $44 billion in sales last year.

Microsoft expects its new version of Office, due out in early 2007, to spur another round of demand. Office includes Outlook e-mail, PowerPoint presentation software, Excel spreadsheets and Microsoft Word.

Redmond, Washington-based Microsoft sells the latest version of Works, which includes a calendar, word processor, spreadsheets, Web Browser and e-mail, for $50.

Last month, Google said it created a free software platform to run a set of business software programs including e-mail, scheduling and communications. A paid, premium version will be available later this year with an ad-free option.

At the time, Google also said its online spreadsheet and word processing software were candidates for bundling into its business software platform.

Google acquired word processing Web site Writely.com in March and began testing Google Spreadsheets, which allows users to create, store and share spreadsheets on the Internet, in June.

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