Microsoft is planning to take on the likes of Google via a new package of low-end productivity software and hosted services, codenamed Albany.

According to a source close to Microsoft, Project Albany puts together a combination of Office, Office Live Workspaces, Windows Live OneCare and the Windows Live suite of services in one package that eventually is expected to be available in retail outlets such as Best Buy.

The source, who asked not to be named, said Microsoft is asking select testers to try out the Project Albany beta, but is requiring them to sign a non-disclosure agreement just to participate in the test. The main focus of the initial beta is to test the unified installer for the package.

It's unclear how much of Office will make it into Albany. Because of its price points and functionality, Office Home and Student 2007, which include Word, Excel and PowerPoint, are the most likely candidates for inclusion in the new suite, which is expected to be fairly low-cost. Other products that are expected to be a part of Project Albany are hosted services Microsoft has developed over the past few years.

Office Live Workspaces is Microsoft's hosted service for storing and sharing documents online, while Windows Live OneCare is a security service that includes firewall and anti-virus protection.

Windows Live services include hosted email, search, photo-sharing and other services; it is also not certain at this time which of these services will be a part of Albany.

Microsoft has confirmed that it has sent out beta invitations for a product code-named Albany, but declined to share additional details.

Because of its history of selling packaged software, Microsoft is adopting a software-plus-services approach to providing applications online to compete with Google's free and low-cost hosted services such as Google Docs and Apps, which are beginning to encroach on Microsoft's historical packaged-software territory. Other companies such as IBM also offer free productivity applications, although IBM's Symphony suite is not a hosted service.

Microsoft executives have said that the company eventually will offer a hosted version of Office, even as the various packaged versions of Office continue to be successful in the consumer and business markets. With Albany, the company could be trying to create a hybrid product that wouldn't cannibalise its software business even as it moves Microsoft's services strategy forward.