Microsoft has intensified competition with Google by announcing a free web-based version of its Office software.
Investors responded positively to Microsoft's move, sending shares almost 3.8% higher to close at $23.23, according to the BBC.
The announcement comes less than a week after Google announced it was developing a free operating system, challenging Microsoft's Windows operating system.
Both companies are investing in online development in response to user demands for powerful web-based collaboration applications that are reliable.
Giving millions of Windows Live users free access to the Office web applications could put $4bn in revenue at risk, according to The Wall Street Journal.
But analysts say the move is a smart one to keep as many people as possible using Microsoft applications and is probably worth the risk.
The move is also unlikely to affect Microsoft's overall business as the firm makes most of its money from business users of its productivity software.
Microsoft said it will experiment with placing advertising on the online applications before making them available, according to the Financial Times.
Microsoft plans an early release of web applications to thousands of testers later this year, followed by a public beta at the end of the year and a full release in early 2010.