SAN FRANCISCO (Business 2.0 Magazine) - Google's acquisition of Upstartle, the Silicon Valley-based provider of Writely, a Web-based word processor, is the surest sign yet that the company plans to take on Microsoft in the market for office-productivity software.

But that competition may be less of a grand plan to challenge Microsoft (Research) than a byproduct of Google's relentless need to expand its core business of selling online advertising.

Writely, featured in Business 2.0's recent list of 25 hot Internet startups reinventing the Web, lets users write documents with an interface similar to that of Microsoft Word, taking advantage of the Internet by letting users store and share documents online. Writely would take its place alongside Google's Gmail and CL2, an online calendar application that's in the works, forming the backbone of an office-productivity suite that would compete with Microsoft's Word and Outlook applications.

While Google (Research) supports OpenOffice, a Sun Microsystems (Research)-sponsored open-source project, and has hired engineers who volunteer for the project, it has denied interest in making and distributing such software itself.

But documents accidentally posted online by Google last week show that the search engine does, in fact, have such ambitions. The difference is that it plans to deliver office-productivity applications online, through a Web browser -- what's known in the industry as a "thin client." Google plans to keep most of its software code on its vast array of servers, unlike Microsoft, which develops complex applications that reside primarily on a PC's hard drive.

The leaked documents stated that the online-application strategy "will help us make the client less important...which suits our strength vis-a-vis Microsoft and is also of great value to the user....Gmail started to do this for webmail, but that's just a small first step. Infinite bandwidth will make this a reality for all applications."

The presentation focused on Gdrive, an online storage vault where Google users can keep documents, spreadsheets, bookmarks, and other data. Gdrive has not yet been officially announced.

"It could not be clearer that Google is going back to the concept of network computer, doing an end run around Microsoft," says Ben Schachter, an Internet analyst at investment bank UBS.

The "network computer" was a concept popularized by Oracle (Research) CEO Larry Ellison in the 1990s, in which stripped-down computers would run software over a network rather than off a local hard drive. Such devices failed to gain traction in the marketplace because of a dearth of broadband connections.

Since then, says Schachter, broadband has spread and technology has evolved enough for Google to revive the idea. "They might have learnt from the mistakes of the past," he says.

Network speed and reliability have made users more confident in Web-based software. And technologies like Ajax -- the programming techniques which allow Google Maps users to scroll smoothly through an online map -- have made browser-based applications more responsive and user-friendly. These developments have been key in making Web applications competitive with the kind of desktop software Microsoft makes.

But competing with Microsoft is more of an afterthought for Google, which is contending with Wall Street's high expectations for continued growth. Browser-based applications like Writely could feature Google's contextual advertisements, a business which is projected to grow to $9.5 billion this year.

"It is the cheapest way to generate pages on which you can stick ads," points out Chris Winfield, president of global search engine marketing firm 10e20, and a longtime Google watcher.

For Google, which prizes the math Ph.D.'s it has on staff, the calculation is alarmingly simple. Google makes around $16 per user per year in advertising. There are more than 300 million Microsoft Word users today. If Google persuades some of those users to use its Web-based software instead of Word, and they spend more time using other Google tools as a result, Google could boost its per-user advertising sales. Even a $1 boost per user translates to $400 million in additional revenue.

And if that happens to hurt Microsoft's sales of Office? An unfortunate accident of business.

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Om Malik is a senior writer for Business 2.0 and writes a daily blog, gigaom.com.