Google is ramping up its enterprise offering with the planned release of its paid-for email domain hosting service, potentially by the end of this year, to complement a suite of productivity tools.

Although Google claims it has already seen "tens of thousands" of small businesses opt for its beta service over rival offerings such as Microsoft Outlook and Exchange the big picture here is not Google v Microsoft, it claims -- in fact Google wants, and needs, Microsoft to succeed with releases such as Office 2007.

Dave Girouard, vice president and general manager of Google Enterprise, told silicon.com: "It's not really our intention to take a bite out of Microsoft. My belief is the real opportunity is there for companies to use both."

Girouard said even within Google that is the case, expressing the belief that businesses will find a balance that works best for them.

"There will be times when it makes perfect sense to use Google products and there are times when it makes perfect sense to use Microsoft products," he said, adding that Google's hosted apps will typically fit where greater collaboration is needed.

However, the reason for Google's apparent willingness to see Microsoft continue to thrive is far from benevolent.

The fact is Google needs Microsoft to remain a major player in the applications market, in the same way it needs IBM and other competing rivals, according to Jim Murphy, research director at analyst house AMR.

The bulk of Google's enterprise revenue still comes from search and as such the more sources of data within an enterprise -- the more apps, the more users, the more file directories and the more general chaos on the network -- the more Google stands to make by having the means to effectively search that data.

AMR's Murphy wrote in a research note published earlier this month: "[Google] makes its living on lots of traffic and content in disparate places. In a way, it has a business model that thrives on competition, whether it's from Microsoft, IBM, Oracle, other search engines or even its own acquisitions."

However, whatever Google says publicly, it is clearly intent on acquiring enterprise users from somewhere. Girouard believes next year will be a breakthrough year for Google apps such as its spreadsheets and word processing service, formerly known as Writely.

He is confident businesses won't simply use on-demand apps as a quick fix or an on-ramp to doing business. Nor does he believe it would make sense for companies to 'dip a toe in the water' and then retreat back to an on-premise offering.

"Our ability to put 100,000 users onto our system without even blinking is pretty astounding, and businesses need to learn pretty quickly that they need to focus their efforts on what's core to them. Services like email, calendaring and basic productivity shouldn't be extraordinarily expensive and shouldn't require a lot of your time," said Girouard.

But as AMR noted, search remains key to Google's enterprise offering. Its success, according to Google and to analysts, is due to consumer experience of Google as an internet search engine first and foremost.

AMR's Murphy believes this tail wagging the dog could see Google apps enter the enterprise in a sporadic fashion, sowing the seeds for wider, more authorised rollouts.

"The dynamic here is in using the consumer as the lowest possible barrier to entry for the enterprise," wrote Murphy, adding consumers will ensure Google apps find their way into the enterprise "whether leadership knows it or not".

But analysts are also pragmatic about the risks and problems involved in switching any services over to Google.

Gartner advises anybody assessing Google's enterprise credentials to "evaluate these new applications with extreme care and thoroughness, as you would any such offering from a vendor that lacks a track record with enterprise applications".