I agree that having Software locally installed is a lot more reliable and stable then Web Applications. But for those of you who have used the web based version of Outlook a.k.a Exchange 2003/7 then you know that Microsoft was streets ahead of the game with regards to web based applications a while ago. Granted Google and Zoho offer their services for free, dont forget that Google also owns the Advertising Model behind it namely Adwords & Adsense.
Unfortunately Microsoft got left in the dust with regards to that. They missed the boat, the harbour and all departing flights involving online marketing and advertising. It is that very fact that allows companies like Google and Zoho to offer their services for free. Facebook, Google, Yahoo thrive off PPC and other type of advertising means.
Microsoft has tons of potential in terms of "Platforms" provisioning, and software frameworks, and now with MS Azure, Google Apps Engine, Amazone Web Services all forming part of the Cloud Computing space, they all fighting for market share for niches in niches.
Question is what is Microsoft going to do with regards to Office Online??? I can guarantee that they will have to come out with a Free Version of it. Without that it will never sustainable no matter how much add on services they throw in. People like things for free. That's why Google rocks because they practically offer everything for free.
The other problem we face is Broadband provisioning in SA. Cloud Computing, Office Online, youtube, browsing, emailing, etc... all consumes bandwidth and with our "sub-standard" broadband offerings we will probably get left behind the rest of the world AGAIN.
Anyways it should be an interesting battle. You can be assured that the best minds and savviest of business people are battling away for market dominance.