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The revamped Office, touted by Microsoft Chief Executive Officer Steve Ballmer today as the most ambitious version so far, takes advantage of cloud computing and is designed for use with the upcoming Windows 8 operating system.
It makes use of cloud computing by storing documents and settings on the Internet by default, and is compatible with touch screens widely used in tablets. It also incorporates Skype, the video-calling service Microsoft bought for $8.5 billion in 2011.
The latest version of Office comes as Apple and Google make inroads into the workplace, long Microsoft's stronghold. Office is Microsoft's single-biggest profit driver.
"The Office that we'll talk about and show you today is the first round of Office that's designed from the get-go to be a service," Ballmer said at a news conference. "This is the most ambitious release of Microsoft Office that we've ever done."
Microsoft has a lot riding on the 15th version of Office. Windows is one of the world's biggest computing platforms, and the Office applications -- Word, Excel, PowerPoint, and other tools - are used by more than 1 billion people around the world.
The world's largest software company has been slow to adapt to a boom in mobile devices and cloud computing.
Microsoft is hoping corporate IT managers will fork over the cash to upgrade internal software just when global tech spending is looking shakier than it has in years. The 2013 picture is uncertain but budgets are expected to tighten, with Europe's economic crisis and a deceleration in the Chinese economy.
The company last updated Office in 2010, when it incorporated online versions for the first time. The full version of Office 15 is expected to be available in early 2013.
Cloud computing refers to a growing trend toward providing software, storage and other services from remote data centers over the Web instead of relying on software or data installed on individual PCs.
"Your modern Office thinks cloud first. That's what it means to have Office as a service," Ballmer said, adding that a preview version of the software is now available online.
Documents in the sleeker-looking Office can be marked up by writing on a touch screen with a stylus. The suite will be compatible with tablets that use Windows 8 - due for release in October.
Screens appear less cluttered with icons and menus than in current Office applications.
Microsoft did not say whether it planned to launch versions of Office compatible with Apple's iPad or tablets running Google's Android platform.
The software package is now integrated with Skype, the voice-over-IP service that lets users collaborate on documents through video conferences.
While past versions of Office saved documents on PCs' hard drives, the new Office uses Microsoft's online "Skydrive" service for default storage. Documents can be shared on Facebook or published as blogs.
"The Windows 8 launch is right around the corner, and we have a lot to do ... In a sense, it feels to us a lot like 1995," Ballmer said, referring to Microsoft's Windows 95 operating system which was a significant step forward at the time.
"We have the most exciting, vibrant version of Windows in years," Ballmer said. He did not disclose pricing plans for the new Office.
Google has been pushing hard to persuade Office users to switch to Google Docs, an applications suite running on Google's servers and accessible on the cloud and mobile devices. Apple has also been trumpeting the ability of its iPad -- the dominant tablet in the market today -- to perform clerical duties.
"This puts them (Microsoft) even farther ahead of Apple in terms of product richness. But it still leaves the door open to competition from Google pursuing a strategy that's cross-device, cross-platform - and is free," said Sarah Rotman Epps, an analyst at Forrester.
Shares of Microsoft rose 0.17 percent to close at $29.44 on Monday.