Ask Adobe CEO Bruce Chizen about the state of relations between his company and Microsoft, and he finds it hard not to smirk.

"I have trouble using the words 'partner' and 'Microsoft' in the same sentence," Chizen said at the Adobe MAX 2007 North America conference in Chicago on Monday.

Yet the two longtime rivals are more similar than they may like to admit. Microsoft Office and Adobe's Creative Suite product line, which includes Photoshop, Illustrator and other applications, dominate their segments of the desktop software market. But both are starting to come under threat from free software-as-a-service alternatives offered by Google Inc. and other vendors.

Moreover, the strategic responses of Microsoft and Adobe to the SaaS dilemma are startling in their similarity: introduce Web-hosted services that augment their core software franchises without cannibalizing them for as long as possible.

Chizen would never be caught mouthing the "Software + Services" catchphrase pounded into the ground by Microsoft CEO Steve Ballmer. But he is steering Adobe in the same direction that Ballmer is pointing Microsoft.

For instance, Adobe is buying an online word processor called Buzzword through an acquisition of Virtual Ubiquity Inc. and plans to immediately pair the multiuser software with the beta release of a document hosting service code-named Share. In addition, the company is developing Web-based versions of Photoshop and its Premiere video-editing software, as well as a new image-hosting repository called Scene7 for Photoshop users.

Photoshop Express, a free application that lets users do simple edits of their photos and share them with friends online, will arrive in a beta version by year's end, will arrive by the end of the year, according to John Loiacono, senior vice president of creative solutions at Adobe. (A screenshot of the software can be seen on the company's Web site.)

Like Premiere Express, its already available sibling, the Web-based Photoshop is being built using Adobe's Flash technology. Loiacono said it offers "a small percentage of the functionality of Photoshop."

And that will be true for many years to come: Instead of building full-fledged online versions of Photoshop or Premiere that would offer powerful Internet-based collaboration capabilities and be aimed at professional designers, Adobe plans to limit the free online versions to functionality designed for mainstream consumers. "We don't see a strong need to move in the direction of creating a true Photoshop online," Loiacono said.

And just as Microsoft has repeatedly insisted that it has no plans to offer a hosted, subscription-based version of Office, Adobe said it doesn't intend to make profit-spinning software such as Photoshop available in a hosted format, despite the availability of Google's free Picasa photo-editing service and the increasingly powerful features in similar offerings such as Kodak's EasyShare Gallery and HP's Snapfish.

Creative Suite 3, the latest version of the Adobe product line, was introduced last spring. The new release was the first to include products from Macromedia, which Adobe acquired two years ago.

In its first full quarter since releasing CS3, Adobe reported $546 million in revenue from its so-called creative software tools, up 65 per cent year to year. Those sales seem to show that Adobe can afford to wait.

"I wouldn't say there's any pressing business reason to create a fully hosted version of Photoshop or Illustrator, as those are professional tools that customers would prefer to install on their computers," said Jason Bloomberg, an analyst at ZapThink.

Bloomberg said that there are some differences between Adobe's strategy and Microsoft's approach, which includes services such as Office Live Workspace, an online document collaboration service that Microsoft released in beta form Monday. Workspace offers some rudimentary version control and document-viewing features, but otherwise relies 100% on Office to create and edit documents.

"Microsoft's key weakness in that area is that they feel they must control both the server and the client," Bloomberg said. He added that Adobe is remaining more platform-neutral, which makes SaaS offerings such as Photoshop Express or Buzzword "open to all comers. Adobe is leveraging their strengths where Microsoft is weak."

Adobe downplayed talk that its online offerings will cause conflict with other vendors. The company is offering Premiere Express to users of YouTube and Photobucket's photo- and video-sharing site. Loiacono said Adobe will try to strike similar deals for Photoshop Express with online photo developers, such as Kodak or Shutterfly.

"Our forte is to solve workflow problems that people have," he said. "In some cases, you will see us doing partnerships."

And with Buzzword and Share, Chizen said, Adobe is "not trying to compete directly with Microsoft or Google."