Hotmail co-founder, Sabeer Bhatia, is investing in an online office productivity suite that is set to compete with Microsoft and Google.

Instant Collaboration Software Technologies (InstaColl), a Bangalore company co-founded by Bhatia, unveiled its Live Documents on Wednesday, an application that allows users to access and work on their documents online using a browser, and collaborate and share documents in real-time with others.

The software supports any browser that supports Adobe Flash and runs on any computer operating system, said Sumanth Raghavendra, chief executive officer of InstaColl.

Online documents can also be synchronised and worked with off-line, using a desktop client that wraps around an office suite running on the desktop, Raghavendra said. Live Documents automatically synchronises all changes, the next time the user goes online. Users can work on the document in Microsoft Office when off-line, for example, and then the document will be updated in Live Documents for online collaboration, he added.

The hosted service, which is currently available for technology preview at www.live-documents.com, is free for individuals but corporate users will have to pay. Corporate users can sign up for the hosted service, or run a license of the software on an internal server within the company, Raghavendra said.

Live Documents uses Flash and Flex technologies from Adobe to provide users a better user experience than with the online office applications from Google, which are essentially stripped-down versions of Microsoft Office, Raghavendra said.

"Even power-users of Microsoft Office can use our service," he added. Microsoft will not sacrifice their desktop software licence business by offering a fully online office productivity service, which presents an opportunity for InstaColl, he added.

InstaColl is targeting both the office productivity market, which it estimates to be $20 billion this year, and the market for document management and collaboration software.

The decision to offer the service free for personal use was prompted by the need to popularise the technology, Raghavendra said.

The application currently supports Microsoft Office on the desktop for users who want to work off-line, but will also support OpenOffice.org, an open-source office suite, in a few months. InstaColl also plans to launch by that time, its own desktop client to offer its customers the ability to work off-line.