Ten years later, he penned another memo–titled simply “Internet Software Services“–in which he warned of a “services wave of applications and experiences available instantly over the internet” that would reshape the traditional software business. “This coming ’services wave’ will be very disruptive,” Gates wrote.

And lucrative for those who were quick enough catch it. Salesforce.com (CRM), for example. Google (GOOG) and Amazon (AMZN), as well. Not Microsoft, though. Fearful of undercutting its fantastically lucrative packaged-software business, the company has been slow to enter the “software-as-a-service,” or cloud computing, market. Methodical, but still slow.

Now, with Google’s business-level hosted applications (Google Apps) gaining traction, Microsoft is moving a bit more quickly. The company dropped the 5,000 worker minimum on its Microsoft Online Services offering today, expanding the availability of Exchange Online, SharePoint Online, and Office Communications Server Online to businesses of all sizes. Especially, the smaller ones for whom Google Apps had previously been the only option …

We don’t think it’s a competitor to Microsoft Office. It’s casual and sharing, and a better fit to how people use the Web.”

–Google CEO Eric Schmidt on Google Docs and Spreadsheets, April 2007

We are not in this to get Microsoft. We are in this to offer more compelling choices for consumers and businesses.”

–Dave Girouard, general manager of Google’s business software division, April 2007

Soldiering on in its quest not to compete with Microsoft’s (MSFT) core office-productivity software business, Google (GOOG) last night added another component to its Web-based productivity suite–Google Sites. Created from JotSpot, the hosted wiki platform Google acquired back in 2006, Sites is essentially a lightweight version of Microsoft’s business-collaboration program SharePoint. It offers organizations a means of instantly creating a wiki-style group workspace, in which employees can collaborate.

It’s another powerful addition to the Google Apps suite, which already includes Gmail, Google Calendar, Talk, Docs and Spreadsheets and Page Creator. And it’s free. And if you think of “free” as a euphemism for “not robust enough for enterprise use,” you best think again. At least that’s what Google says, anyway. “The so-called lightweight cloud application isn’t for the non-power user,” Matt Glotzbach, product management director for Google Enterprise, told News.com’s Dan Farber. “It’s actually for the power user. Today’s power users aren’t writing macros. They are ‘power collaborators,’ grabbing content from six different places in the cloud and putting [it] on a site and sharing it.”

What was that Schmidt said about casual users again?