(Bloomberg) -- Microsoft Corp.’s new Office software will incorporate Internet-connected features such as Skype and the Cortana digital assistant in both its cloud and packaged versions, underscoring the importance of installed software even as the company focuses on moving customers to subscriptions.

Office 2016 offers flagship productivity applications like Word and Excel, with added tools for videoconferencing, voice commands and collaboration, such as letting two people type in the same document simultaneously and see each other’s work instantly, said John Case, vice president for Office.

Office remains Microsoft’s single biggest product, with sales of $23.5 billion in the latest fiscal year. The company has been focusing more of its engineering on the Office 365 cloud-based versions of Office, where customers can get monthly updates without installing and maintaining the software on-site. Still, only about a quarter of commercial Office customers are using the cloud version this year, meaning Microsoft needs to keep apps in the packaged version, whose last release was Office 2013, updated and modernized.

“The focus is on the cloud, and there is steady, but diminishing, offerings on-premises,” said Wes Miller, an analyst at Kirkland, Washington-based Directions on Microsoft.

Modern Attachments

Office 2016 will be available Tuesday in cloud and on-site versions for Windows, and on-premises for Apple Inc.’s Mac OS -- the Office 365 cloud version has been available for Macs since July. The new software adds what Microsoft calls modern attachments to its Outlook e-mail and calendar app. Instead of static attached files, which run the risk of missing changes made since they were sent, workers can set a link to a file that will always contain the latest version.

Users can verbally ask Cortana, Microsoft’s artificial-intelligence-based assistant, to find a particular file or e-mail, and the Bing search engine is integrated so that hovering over a word with a mouse brings up a menu of choices including Web search. This version also has improved security.

Moving customers to cloud versions of Office software helps Microsoft because they are delivered as a subscription, which means customers pay recurring fees rather than making one up-front purchase. That frees the company from trying to persuade people and businesses who own perfectly good older copies of Office to pony up for newer ones.

“For Office, we serve such a broad customer base, I don’t know if one size fits all,” Chief Marketing Officer Chris Capossela said in an interview. “There are some customers that don’t pay a subscription and I don’t want to turn them off.”

Cloud Focus

Chief Financial Officer Amy Hood told analysts at a briefing in April that by fiscal 2018, she expects half of commercial Office customers to be using the 365 cloud version. Already this year, half of the renewals for Office multi-year agreements were for the cloud version, Case said. The consumer shift isn’t far behind, he said, with the company adding almost a million new consumer users to Office 365 each month.

Microsoft will continue making new versions of the standard, installed versions of Office as long as there’s customer demand, Case said -- but the focus going forward will be on building up the cloud products. To that end, some advancements will appear in Office 365 only, such as Planner, a project-management and scheduling tool.

“We are seeing much more momentum on the cloud side and that’s where you’ll see the innovation first,” he said.

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