Microsoft yesterday threw a counter punch to Google Sites. Office Live Workspaces was launched with much fanfare. You could almost hear the students and non-profits around the nation shout ‘let FREEdom reign’. Peek past the well orchestrated announcements and blog posts and recognize the old adage, that there is no such thing as a free lunch.

To realize value from Office Live Workspaces, you need to run Microsoft Office, ‘preferably Office 2007’. So college senior, come join the ‘free’ party – but don’t forget your $399 (Office w/ Outlook) for the Microsoft Office cover charge.

A bold move would have enabled users to create and track work in the cloud. Instead, Microsoft succumbed to their $16b Office legacy. Office Live Workspace is a shareable container for your office docs in the cloud. Their greatest asset brackets them from the breakout move from which so many people could benefit.

While some may describe Workspaces as ‘SharePoint in the cloud’, that’s a stretch in my opinion and one that Microsoft can't afford to let happen. The same day Microsoft launched Workspaces, they also indicated a strong push towards offering fully hosted versions of SharePoint (yes, for a fee). When hosted SharePoint is launched in second half of the year, small and medium businesses will have to decide between the free online service vs. stepping up to a licensed version of SharePoint. If Workspaces catches fire, look for Microsoft to have the water buckets nearby.

Cannibalizing any major revenue stream – especially one like SharePoint which is heralded as their next big profit driver - will not be tolerated by the execs. Free user counts at the expense of profit contribution won't be the catalyst that drives the MSFT share price back into the mid 30's.