For good or for bad, Microsoft is finally stepping into cloud computing for small business.

Microsoft's Web-based version of its franchise Office product, branded as Office 365 ($6.75 per user a month in Canada), came out of private beta recently with company executives flatly stating that the Internet is the one and only future for Microsoft.

If the past months I have spent beta-testing Office 365 are any indication, this is true. Office 365 represents a fundamental shift in how Microsoft thinks about its small-business product lineup.

(Full disclosure: My firm has created content for an unrelated unit of Microsoft.)

What it is

Office 365 is a Web-based version of Microsoft's line of office software. It is divided into two major segments. One is a stripped-down, Web-based version of Outlook, Word, Excel, PowerPoint and OneNote. The other is the means to interconnect full versions Microsoft's PC-based software portfolio via the Web.

The stripped down Web space features access to a Microsoft communication tool called Lync, some administrative features and other functions. It also gives a small business access to Microsoft's Exchange and SharePoint collaboration tools.

And if that is not enough to grasp, Office 365 should not be confused with other Microsoft Web-based products such as Windows Live and Facebook Docs. These offer similar features, but are aimed at consumers. For example, Hotmail e-mail users must remember to go to WindowsLive.com, while Office 365 Outlooks users are usually directed to a login like companyname.onmicrosoft.com.

As I said, it is a big change.

What you might like

1. Powerful business features that work on the Web.

Office 365 has impressive collaboration functions. Users can get every feature in Word, Excel and all the rest of the Microsoft Office software portfolio, plus the means to collaborate on that content in real time. Assuming you set it up properly, users can make comments on documents in their own handwriting, host a chat about a spreadsheet, and turn an e-mail thread into a real-time video meeting. There are also impressive content-management tools, revision management systems, and even tools that let a business decide how files should be named.

2. First-rate security.

Microsoft clearly sees opportunity in serving the security conscious business with Office 365. Identities are tightly managed from a centralized admin page that a non-geek small-business owner can run. Access to documents can be carefully administered and records of who changed what and when can be easily deployed.

What you might not like

1. Office 365 can be confusing.

Besides having to wrap your brain around Microsoft becoming a Web company, there is the practical issue of having yet another Web identity, e-mail address, log-in and Web space to understand and manage. Your firm must be willing to commit the time and energy to force a fresh Web-based logic through your team, who may be already overworked and distracted. One example of many issues that may need finessing: The log-in to the collaboration tool Lync requires a consumer Microsoft Live ID, and not your business Microsoft Office 365 ID.

The company says it will smooth out any issues that come up.

“We are absolutely committed to offer this software in a simple way,” says John Betz, director of product management for the Business Online Services Group at Microsoft. “If we do not deliver it right, we will bear the burden.”

2. The high level of security takes some getting used to.

Yes, Office 365 takes security seriously – almost too seriously. Sign-ins, log-ins and other security tools are nearly everywhere in Office 365. And doing simple things such as a password reset requires a call to customer service, a temporary code, a call back from customer service, all of which takes a good hour from beginning to end.

3. Significant upgrades are hidden inside Office 365.

While the stripped-down, Web-based versions of Outlook, Word, Excel and others offer adequate collaboration and features, if you want the full Microsoft Office suite you will need to download software and complete a major upgrade – which is the usual two-hour Microsoft experience.

Mr. Betz notes that many online companies require software downloads, including Apple's iTunes. And configuring Office 365 is one of the fastest and easiest on the market.

4. High cost.

Though $6.75 per user per seat is a great discount for some features, you still must pay this monthly cost on top of fees for the full versions of Word, Excel and other Microsoft Office applications. Microsoft's new business model is to charge for operating systems such as Windows 7, charge again for software such as Microsoft Office. And then charge again to what amounts to monthly rent for connecting that software with Office 365. That all adds up.

The bottom line

Unfortunately, small-business users may have little choice but to get comfortable with Office 365. Virtual businesses, those who travel a lot and those using Web-based tools such as Google Apps, are likely to find Office 365 a manageable transition. But those not on the cutting edge of cloud computing may struggle. But there's no escaping Microsoft's commitment to Web-based versions of its Office products. Eventually you're likely to simply have to start using Office 365.