I've been remiss in not mentioning ZohoWriter, a free browser-based word processor which, like Writely, offers a rich, fast-evolving set of tools. (Both ZohoWriter and Writely, like most serices built using AJAX techniques, offer desktop-like speed and interactivity that would have been pretty astounding just a few months ago.)
At the moment, Writely feels a bit more mature, but ZohoWriter has a lot to recommend it, including an elegant approach to letting you work in multiple documents at once and a Firefox-like search feature that puts the search field at the bottom of the window where it's out of the way. Both do automatic versioning of documents (so you can jump back to a previous iteration) and both have collaborative and blogging features.
And both have one straightforward but terrific aspect for folks who work on multiple computers: Everything's saved to the Web, so you can get to all your documents from whatever machine you're using.
Could you consider dumping Microsoft Word for ZohoWriter or Writely? Right now, probably not. As powerful as they're getting, they're still in beta and missing significant features. (If ZohoWriter has a spell checker or a find/replace option, I haven't found them.) As browser-based tools, they're only available when you can get online--you can, however, import and export files, so you can store copies of documents on your local drive and work on them in Word or another word processor when you're not connected.
But like I say, these services are still works in progress. I doubt that either will match all of Word's features any time soon, but it seems conceivable that they may implement the most important ones. (Not trying to do everything is, in some ways, a blessing--it makes for a cleaner interface.) And when it comes to collaborative stuff, they already have Word beat in some real ways.
So I could see the day come when we spend most of our word-processing time in a browser-based service like ZohoWriter or Writely, opting for a desktop app like Word only when we need to work offline. We'll see...
The folks at AdventNet, the company behind ZohoWriter, offer a bunch of other Web-based tools (some free, some fee-based), and are working on a spreadsheet called Zoho Sheet. All in all, we're a lot closer to seeing Microsoft Office's significant functionality replicated in the browser than I would have ever imagined a year ago.
(ZohoWriter, by the way, is free, and seems to be free of ads; I'm not sure how AdventNet intends to pay for it. In fact, it's unclear how a lot of AJAX services will make money, which is one reason why I bet we'll see at least as many fade away as go on to flourish.)
Will Microsoft respond to all of this? Oddly enough, its upcoming Office Live is browser-based, but isn't an office suite. And Office 2007, due later this year, will remain a very desktop-bound suite. In other words, it hasn't really reacted, except perhaps to add more stuff to Office 2007 that would be tough to match in a browser application, thereby helping to justify the ongoing existence of desktop software.
Office is such an important profit center for the company that it's hard to imagine it cloning it as a free online service. Yet it also seems inevitable that services will replace much desktop software over the next few years. You've got to think that Microsoft will have to turn its desktop programs into browser-based tools at some point. More and more, it looks like it's not going to be technical limitations that prevent them from doing so.
Anyhow, even if you have no desire to give up your current word processor, check out ZohoWriter. (Signing up takes about ten seconds, but you can also try it in demo mode without creating an account at all.) It's an impressive piece of work--and most definitely a preview of where the world's going.