'Brutal timing'

Google's new service costs $50 (£27 or 40 euros) for every account and for this customers get phone support, a guarantee that the online applications will work 99.9% of the time and 10 gigabytes of storage for each e-mail address.

The package of programs available includes e-mail, word processing, spreadsheets, calendar and Google Talk.

By paying, users also get the option to turn off the adverts that usually populate the free versions.

The free version of this package was introduced in August 2006 and Google said that more than 100,000 businesses had signed up.

Google hopes that the chance to collaborate on key documents via the web will prove popular to small firms who are more used to e-mailing copies back and forth.

Analysts said the announcement was intended to give people an alternative to Microsoft's Office 2007.

"The timing is just brutal for Microsoft," said Rebecca Wettemann, vice president of research at Nucleus Research. "It's definitely a shot across their bow."

In related news Microsoft has revealed details of a partnership with telecoms firm BT to create a marketplace for a series of business programs designed for small businesses.

The subscription-based marketplace will host all the programs itself and allow small businesses to use the different applications as a service.

As well as generic applications such as payroll programs the marketplace will also host niche applications designed for particular types of small businesses such as dentists and estate agents.

A spokesman for BT said it would be signing up software firms to make the programs soon and that it was aiming to launch by the summer.