Microsoft's latest Office suite - due the end of next year - will be aimed squarely at the small business, the software giant has said.

The bundle will include the familiar Office 2003 applications along with a new financial management product called Microsoft Office Small Business Accounting and an updated version of Outlook 2003 with Business Contact Manager.

The new edition will allow small businesses to manage customer, financial and business processes. Payroll functions come through integration with services from outsourced payroll services provider Automatic Data Processing.

The new Office edition was developed jointly by Microsoft's Office group and Microsoft Business Solutions (MBS). Office for small-business management will offer an easy migration path to MBS products, the company said.

By offering a path up to the more sophisticated MBS products such as Great Plains and Microsoft CRM, Microsoft is filling a significant gap in its product offerings and taking on Intuit, said Paul DeGroot, an analyst at Directions on Microsoft. "Microsoft has a major gap in its small business offering. They have basically left that to Intuit and QuickBooks is the dominant product in that area," DeGroot said. "As a consequence there has not been a ladder for small businesses to climb on and get to Great Plains. I would say that this is an important gap that Microsoft needs to fill."

For the smallest businesses, Microsoft today offers a simple checkbook-type application called Money Small Business. The next step up is Small Business Manager, an entry-level ERP product. "There is a gap today where people need an entry-level accounting system, but don’t need entry-level ERP," said Steven Guggenheimer, a vice president in Microsoft's small and mid-market solutions & partner group.

The new product combines accounting with business contact management and Office functionality, Guggenheimer said. "There are stand-alone accounting applications out there today, but they do not connect very well with the other applications most people use in their business. They don't have the seamless connection with contact management or Excel, which some people use for their accounting," he said.

Among the features of the new Microsoft application combination is the ability to mark hours as billable when a calendar entry is created in Outlook. This information can then easily be transferred to the accounting application, he said. Another feature is easy invoicing using Word. Data from the accounting application can be pushed to Word for use in invoice templates, Guggenheimer said.

Microsoft will offer tools for QuickBooks users as well as users who do their accounting in Excel to migrate to the new Microsoft Office suite, Guggenheimer said.

Intuit has competed with Microsoft before and has maintained its leadership in the market for small business accounting software, said Terry Hicks, director of product management for QuickBooks at Intuit.

Aside from winning more customers for its business products, the expansion of the Office suite line-up also fits in with Microsoft's strategy to grow its Office business by tailoring product bundles for specific audiences. The vendor already sells a Small Business Edition of Office 2003, introduced last year, which includes Excel, Outlook with Business Contact Manager, PowerPoint, Publisher and Word.

Microsoft pitches the new Office Small Business Accounting product in the bundle as an opportunity for partners. Other software makers, or ISVs, can offer applications on top of the software, it said.

Pricing has not been disclosed and the company said it is too early to discuss international versions of the software. A beta test is however available on Monday. You can sign up online at: www.microsoft.com/office/accounting.