This is particularly crucial with the new version of its Windows operating system, Vista being released to businesses from 30 November after lengthy delays.

Gamble

Microsoft is also planning to launch its own advertising-financed, on-demand suite of office software - part of an "historic shift" it revealed last year.

But the planned change is a huge gamble for Microsoft, as it could undermine its two main revenue drivers: the sale of so-called "shrink-wrapped" software that needs to be installed on users' computers, and the licensing of its software to corporate customers.

Last month Google relaunched its free online spreadsheet and word processor software - and gives its current Writely and Spreadsheet packages a unified look and feel.

Meanwhile Rightnow and Salesforce.com have also brought out on-demand.

Office Live had been designed for businesses with up to 10 staff, Microsoft said, and is available in the UK from November 21.

The online service has been integrated with existing Microsoft Office programmes - including Accounting Express which is used for everyday financial tasks.

For a subscription fee companies using the new Office Live software get access to extra web storage space and a range of other programmes.

'Opportunity'

British Chambers of Commerce managing director John Dunsmure described the product as "like a genie in a bottle" for smaller firms.

"Trading online offers small business across the UK, greater sales opportunity by reaching more potential customers," he said.

"Small businesses I encounter who are yet to set up an online trading presence are put off by the belief that the set up and maintenance costs are high and very time consuming. This is no longer the case."

Director of small business at Microsoft UK, Clare Barclay, said: "Our aim is to allow all small businesses to compete with their larger competitors on the level playing ground that the internet provides."