In July, Microsoft CEO Steven Ballmer explained the company's strategy to counter Google. This week Microsoft will let loose the dogs of war, making free software available for download in a bid to displace Google's campaign to dominate an ad-supported digital world.

With the release of the new Windows Live software, Microsoft will depart from its traditional retail model and transition into the emerging world of free software and services provided by the likes of Google and Yahoo!

The updated version of Windows Live will include an improved email program, a photo-sharing application and a writing tool designed for bloggers.

"We're taking the communications and sharing components and creating a set of services that become what we believe is the one suite of services and applications for personal and community use across the PC, the web and the phone," Brian Hall, general manager for Microsoft's Windows Live services told The New York Times.

The move to "cloud" computing, where the bulk of a given application lives on a remote server, puts Microsoft on a collision course with the likes of Google. While the two compete for search ad dollars, Microsoft's changing business model for software looks to many like the software-maker and the search giant will lock horns in a potential winner-take-all battle for the loyalty of users worldwide.

"I think Microsoft is going beyond search to a more sophisticated set of services," said Shane Robison, EVP and chief strategy and technology officer at Hewlett-Packard. "It will be a race, and who knows who will get there first?