Over at Webguild I noted a really interesting quote from Sabeer Bhatia, co-founder of HotMail, who suggested very recently that shrinkwrapped software is dead and everybody is going to go online for their office and other applications by 2010.    Consistent with this hypothesis and blustering claim, Bhatia has just launched a new online suite of MS office-like tools.   

Sridhar over at Zoho blogs is really taking Bhatia to task for suggesting that the new product, Instacoll, might capture 1% of the market.   Of course Zoho is not exactly a fan of Instacoll which is a very direct competitor to their offerings, but Sridhar’s point is that venture capital people don’t want companies to shoot for 1% of a market – they want it all.

Frankly, I’m not convinced by any of these points.  People are stubborn with changes.  So first, I think Microsoft will keep plugging along and shrinkwrap will die a slow, not quick, death.   Microsoft’s version of online office tools will be in the best position to win in this game because if they do it cleverly they will slowly transition a huge customer base from Word and Excel and Access over to the online environments and find ways to make money during and after the transition.    

Second, only Microsoft and Google with maybe Yahoo as a distant runner up shot, are likely to capture the online document market.   Why will people choose Instacall or Zoho when they can go with the big guys?    Assume you have three free parties and you are invited to all of them.   They all have a nice dinner for you with similar food, and all are just around the block.   One is at my house, the other at your friend’s house,  and the other at Bratt Pitt and Angelina Jolie’s place.    You are going to Brangelinas, just like you are going to use Google docs.    1% of the office market?   Maybe, but what are you having for dinner again?