I just noticed this past week that Google Docs (word processor, spreadsheet and now presentations, or, to use file extensions almost everyone knows now: doc, xls and ppt) now allows you to work on your docs offline - like if you’re on a plane or in the BART tube - and then synch up later when a connection becomes available (unfortunately, it hasn’t been rolled out to any of my accounts yet). Although Google Docs are still a bit clumsy, this is yet another step towards a serious step on Microsoft’s turf.

Price? Either free, or $50 per user per year for more advanced features and more storage. A bargain compared to Microsoft’s Office bundle, which, by the way, added very little except for confusion in their most recent update. (Kevin notes, though, that in the new version of Excel, you have more than 1 million rows at your disposal, instead of less than 66,000).

At the same time, Google Docs still has a way to go on the way to completely supplanting Excel, Word and PowerPoint. Sophisticated graphs with trend lines, pivot tables, advanced sorting - these are missing in Google Spreadsheets, for example (and I use them fairly often, personally). However, what they lack in functionality, they make up for in shareability and easy collaboration. Kevin and I share Google docs with each other all the time; it certainly is easier than emailing updated versions of the same document back and forth. And most of the time, the limited functionality of a Google doc is all we need.

So what’s Microsoft to do? The same thing it did with Netscape - copy the competition, fast. TechCrunch reported over a month ago that Microsoft’s going to be moving many of its applications online, using a Salesforce.com-like subscription model for usage.

Is it too late? Probably not. The fact is that the majority of business and home users are still comfortable and familiar with Microsoft’s UI (although they kind of shot themselves in the foot with the most recent scrambling of their menus). Provided it’s priced right and that it retains most of the useful functionality of the pure-offline product (something that might be possible with Silverlight, which will probably add more power than Flash and Ajax), Microsoft can probably retain its dominant position. There’s a lot to be said for inertia as well; corporate customers are the least likely to try to rock the boat and switch away from a software library that their users know.

But Google moves fast, and Microsoft is ponderously slow. It’s time for the behemoth from Redmond to pick up its game.