The new service will be free and give its current Writely and Spreadsheet packages a unified look and feel.

Users need to be online to use the service, which will run in a browser.

Many smaller firms are also trying to move into the online office space, where soon they will have to compete with Microsoft's Windows Live services.

Microsoft dominates the market for office software that is installed directly on computers.

Rivals like Google, however, are offering their software online, on demand, and for free - although some get revenue from advertising placed around the application.

Microsoft recently announced that it was planning to launch its own advertising-financed on-demand suite of office software.

Experts believe that it will be based around the company's software package Works.