If you, M$crosoft, wish to remain relevant and vital and influential, you need to cannibalize everything (i.e. Office and all apps) and offer them as hosted services. If you protect the Office "franchise" by not offering Office as a service, there will be nothing to protect in a few years (cf. Writely, and the forthcoming Dabble DB for just a few examples of bits of the Office franchise being chipped away by young hosted service upstarts).
From Services Disruption.:
It is now 2005, and the environment has changed yet again - this time around services. Computing and communications technologies have dramatically and progressively improved to enable the viability of a services-based model. The ubiquity of broadband and wireless networking has changed the nature of how people interact, and they're increasingly drawn toward the simplicity of services and service-enabled software that "just works". Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis.