Microsoft announced on Thursday that it may offer a free, ad-supported version of its basic word processing and spreadsheet software.

Microsoft is considering offering its Microsoft Works suite via the web as part of its growing set of free online services, in what is likely an attempt to beat back a business-software challenge from Google, reports Reuters. The company will consider taking advantage of advertising and other payment models, as well as new forms of distribution, Alan Yates, general manager of Microsoft Information Worker Business Strategy, is quoted as saying.

The challenge for Microsoft will be to ensure that a free or possibly subscription-supported version of Works won't hurt sales of Microsoft Office software, which accounted for a quarter of the company's $44 billion in sales last year.

Microsoft expects its new version of Office, due early 2007, to spur another round of demand.