No, Office Web apps won't 'strangle' Google but I don't think that's the point. They're likely to be as good it not better than Google apps when they launch - as they should be since Microsoft has major advantages over Google. First, they have been doing productivity software for decades and are good at it. Second, they have a better story because they can offer cloud + client interop that Google can't touch. The hype about Google taking massive amounts of share from Microsoft is just that - hype. They're getting lots of free users of GMAIL, some of whom actually use docs and spreadsheets, but very few businesses are actually using Google Apps at all or exclusively. Most still use Office. Office Web apps will provide those customers who want a choice...or more likely the combination of a Web and client experience...will probably choose Microsoft.

But none of this will 'strangle' Google. Google cares about one thing: search. Everything else they do is a side experiment. Google Apps isn't exactly a '20% project' for a few people at Google but it is far form their mainline business. I wonder whether they'll even be in this business in five years.

I entirely agree with Roger. One can argue that Microsoft should have been quicker off the mark, but the fact is that millions of people have been brought up on MS Office and are always going to prefer "the real thing", regardless of the (very real) merits of Google Apps, Zoho, Thinkfree, etc.
One caveat: Office Web had better be GOOD, by which I mean in particular as fast as, and preferably faster than, the competition.

Seeing what happened to Hotmail a while back, it'll be interesting to see if Microsoft can make Office Web an application that actually *works* for a wide audience. Hotmail (or MSN Live or whatever it is called now) still struggles to offer a functional cross-browser version to many users after the last revamp (and before saying "it works for me", go and check the complaints in forums and blogs).

It'll be also interesting to see if those 25% of Office income from consumers will or not be cannibalized. Some people will realize they don't need Word or Excel to make a doc or spreadsheet once in a while. Will Microsoft be able to monetize the free version so that it will balance the possible lost income from consumers?

You Microsoft devotees never cease to amaze me. I use the Open source OpenOffice and like it better than Word ect. Incidentally, Microsoft is forbidden to use the .XML they stole. That might impact their cloud versions of Office suites. Face it, Microsoft is a has been as evidenced by the failure of Vista and the likely failure of it's soon to released Windows 7 or as I call it, Vista second edition. In 1995 NTFS was new technology but this is 2009 for crying out loud. It is hard to fathom all the money sent developing such a garbage OS as Vista. Microsoft remains the most over rated company I have ever seen, Who through unethical and sometimes illegal business practices has bleed people for too long. I would like nothing better than to see this outfit go belly up.

My view is that Office is still the standard tool for business productivity. This opinion isn't just born of Microsoft brain-washing, but by other things I've seen. For example, a friend of mine who works for Oracle went out and bought herself a copy of Office when her work gave her a new laptop because she just couldn't work as well with the alternatives they'd provided.

People who seriously need business software will use the Office client. But there are occasions when a web-based version will be beneficial. I once used Google's PowerPoint equivalent. Note the word "once." I spent half the time wishing that Microsoft had put a version of PowerPoint online.

Now Microsoft cover the whole spectrum of needs, from free and simple, to expensive and sophisticated. I can't see how they'll lose.

Office Web Apps doesn't work on Google's Chrome browser:(

Of Course, If they provide the same kind of experience in using Web Office as we get in the desktop version. Lets see when it really comes out and how it peforms in the market?

Yes, definitely..I've looked at the technical preview and it's very much usable. I used it via skydrive and checked excel , which works great. word/one note are yet to be available. I didn't check ppt though.
Once they enable editing for word as well..I'll definitely use this.

If MS could make SkyDrive work like a virtual HD, and you could use their Web Office to save files to that drive, it could be extremely beneficial. Otherwise, I don't see much use for it. I use Google apps to use and save documents I want to be able to easily work with when I am not always at home. Works great for me. If MS Web Office and SkyDrive could work seemlessly, again, I'd be interested.

Regardless of the perceived relative "goodness" of Microsoft vs. Google vs. anybody's online productivity apps, the simple fact of the matter is that word processing and spreadsheets are commodity apps these days. Microsoft Word might have a "ReturnPhaseOfMoon" function, but who cares? It's not a necessary thing for 99.999% of users, so it doesn't make their package "better".

The sad fact for Microsoft is that they're about as trustworthy as a rabid pit bull. I wouldn't put any kind of data on their servers on a bad bet. I wouldn't write a memo about the company picnic using their online word processing app, and also unfortunately for them I'm not the only one who feels that way by any stretch of the imagination. Not that Google is the second coming, but at least they haven't been proven repeatedly, time and time and time again over many years to have no concept of security or integrity even in the least demanding situations.