IBM is trying to stymie Google's expansion into the business software market.

IBM is now selling a bare-bones email service to companies for $36 (£23) annually per worker, undercutting a more comprehensive package of software applications that Google sells for $50 (£31) per user annually.

For that slightly higher price, Google is offering 25 times more storage: 25 gigabytes per account compared to IBM's 1 gigabyte per mailbox.

Google also throws in word processing, spreadsheet and presentation applications, as well as a video channel. None of those features are included in IBM's package.

Even so, IBM believes its service, called LotusLive iNotes, can beat Google because it has a much larger sales force and relationships with corporate customers going back long before Google co-founders Larry Page and Sergey Brin were even born in 1973.

"This is trouble for Google," said Gartner analyst Matthew Cain.

IBM is responding to the increasing corporate demand for inexpensive email that's run on computers owned by an external supplier instead of the company relying on the service. This approach has become trendy enough to get its own catch phrase - "cloud computing."

Google has emerged as one of cloud computing's chief boosters as it tries to generate more revenue from sources besides its dominant internet search engine, which serves as the hub of the web's most profitable advertising network.

After finding little initial success when it began peddling corporate email in early 2007, Google's sales pitch has been resonating with more companies looking for ways to save money.

Other email providers also are making inroads with similar discount services, so much so that the technology research firm Gartner predicts about 20 per cent of US companies will run at least some of their email through web browsers by 2012.

Without providing specifics, Google says its corporate users now number in the "hundreds of thousands." Some companies, including Fairchild Semiconductor International, switched from IBM's premium email service that costs substantially more than web-based email.

Now, IBM is counter-punching. IBM thinks the timing for its email alternative is ideal, given that Google's service suffered a highly publicised outage that locked out corporate customers for nearly two hours last month.

"Candidly, Google has shown itself to be weak" in some areas of email, said Sean Poulley, an IBM executive overseeing the company's email service.

"There is a world of difference between supporting a consumer-grade service and a business-grade service."

Dave Girouard, who oversees Google's email and other services tailored for companies, responded that Google will learn the ins and outs of selling software to businesses more quickly than IBM will adapt to cloud computing.

He said Google isn't planning to lower its prices.

What's more, IBM probably will face some of the same financial conflicts confronting any long-established vendor trying to cater to a new, less expensive niche in its market.

IBM and other rivals, such as Microsoft, stand to make more money selling more sophisticated email services and software applications that are installed in the computers maintained by the customers.

That means IBM runs the risk of making less money if most of its customers switch to the newer approach, with email hosted off their premises.

But by keeping the storage limits relatively low and skimping on other email features, IBM has narrowed the field of businesses likely to buy the service.

IBM expects the customers to include small and medium-sized businesses, or larger companies whose employees who aren't tethered to an office desk.