The announcement earlier this week that Microsoft would offer fully Web-based versions of SharePoint and Exchange brought the software giant further into the fold of hosted application providers, allowing it to compete with competitors new (Salesforce.com, Google) and old (IBM). But for Microsoft, even after the launch, some questions remained.

The big one: why will a fully Web-based version of Microsoft Office not hit the browser until late 2009? Also, how will the emergence of hosted applications affect the company's business model, which garners a good chunk of its revenue from the high margins of installed, on-premise software?

CIO's C.G. Lynch caught up with Stephen Elop, president of the Microsoft Business Division, after the launch presentation Monday at the St. Regis hotel in San Francisco.

CIO: Say you're a Microsoft customer who has already invested in lots of on-premise software. Why should you consider switching to a hosted Exchange or SharePoint?

Elop: Microsoft [with online Exchange and SharePoint] can help the technology teams at companies by taking some of the workload that they have traditionally had and free them up from that, so they can focus on some more of the strategic IT challenges that companies are facing. I've been a CIO before. I know there's always a list much longer of important things you have get done relative to what you can actually get done, regardless of budgets. Microsoft can broaden its footstep in terms of the services we provide to the customer. Not only can we make available Exchange Online and Sharepoint Online, we can offload some of the aspects of maintaining that software and operating that environment and maintaining the service level, and do so at scale. So we can drive the cost down for you.

CIO: Does Microsoft foresee everything eventually moving to the cloud?

Elop: There is a big role for cloud-based computing. We're fully embracing that. If you saw the announcements at PDC and the announcements we're doing around Windows Azure, we're placing a huge bet on that. But very much our story is whether it's on a PC, a mobile device, a browser, however it is, all of those things need to work seamlessly together across on-premise computing as well as the cloud-based computing. So our value to the customer is to say, look, you want an environment that gives you choice across all of these environments. We're the company that can help you do that.

CIO: So on-premise, installed software lives on? Will the Salesforce.coms and Googles be proven wrong?

Elop: The reality is, people do need functionality on their clients. Could be a mobile device or it could be a PC. We've got experience delivering capability there. Combining that with the cloud is really resonating with customers. So we think something we call "software plus services" is a strong part of our value proposition.

There are certain things you do where certain elements of computing on a PC are an advantage. For example, if you use Microsoft Excel, you'll be able to use it in the cloud, on your phone or on your PC. So generally, that will be a good experience. However, when someone sends you the more complex model of things that have lots of iterative calculation, leveraging the rich capability of Excel, it's going to perform better on a local client no matter what anyone does in a cloud-based environment. It will always be the case that processing capacity, disc speed, memory access and graphical capabilities will be better when locally delivered. It is ever thus. It's just Moore's Law.

As technology advances, the things we do today might tomorrow be well-served in the cloud. But the things we're doing tomorrow on the client are going to be much more advanced too. There's always going to be this