Tuesday, November 18, 2008 10:05 AM PST

The announcement by Microsoft Monday that it would sell online versions of its Exchange and SharePoint products to all its customers underscores the IT industry’s shift towards cloud computing, where technology vendors host data on their own servers while customers access software through a Web-browser.

But as this paradigm shift occurs, the story for Microsoft–as well as its customers and partners– remains complex, especially in the face of new competitors such as Google, Amazon and Salesforce.com, who built their business models almost entirely on the Web as their main platform for development and innovation.

The majority of Microsoft customers, both in the consumer and enterprise markets, have made investments in traditional installed software such Microsoft Office, Exchange (an e-mail server) and SharePoint, a collaboration application that allows users to build shared work spaces for document sharing. Because Microsoft has made billions of dollars in annual revenue from selling this on-premise software, the cheaper cost of cloud-based applications creates a disruption to their current business model.

But Microsoft executives insisted today that the …

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