"Because Google Docs now supports files up to 250MB in size, which is larger than the attachment limit on most e-mail applications, you'll be able to back up large graphics files, RAW photos, ZIP archives, and much more to the cloud ," Google Docs product manager Vijay Bangaru wrote on a company blog.

"More importantly, instead of carrying a USB drive, you can now use Google Docs as a more convenient option for accessing your files on different computers," he added.

"Combined with shared folders, you can store, organize and collaborate on files more easily using Google Docs. For example, if you are in a club or PTA working on large graphics files for posters or a newsletter, you can upload them to a shared folder for collaborators to view, download and print," Bangaru wrote.

Microsoft Responds

Microsoft responded to the announcement by reminding reporters that it offers 25GB of free, cloud-based storage. "Just a friendly reminder that Windows Live has been offering its more than 450 million customers 25GB of cloud-based storage space for free through Windows Live SkyDrive since 2008," an e-mail reads.

"For more than a year now, Windows Live customers have been able to upload many different types of files to the cloud -- including large graphics files, MP3s, PDFs, videos and more -- allowing them to access their files and information anywhere and everywhere they have access to the web."

While Microsoft is bristling about the breathless press Google receives over every little upgrade, the immediate impact is on Google's smaller competitors like DropBox and Box.net, among others, Greg Sterling, principal analyst with Sterling Market Research, said in a telephone interview.

Google's Grand Plan

But even if the upgrade is modest, make no mistake that Google has bigger plans for Google Docs, Tim Bajarin, president of Creative Strategies, said in an e-mail. "Google has had a grand plan to take on Microsoft's Office in the cloud for some time," Bajarin wrote.

"This development sends a clear message that Docs will be positioned as a direct competitor to Office and move more and more of these types of applications eventually to some form of a cloud-based subscription model," he wrote.

That won't happen until Google makes progress on the functionality of the Docs tools, Sterling said.

"I think it still has a long way to go," Sterling added. "It has to start matching the functionality that Office offers. Once it becomes a bona-fide alternative to Office, it may provide serious competition to Microsoft, but right now there's really no comparison. For business users, it doesn't compare to Office."

Recommended Reading: Search & Destroy: Why You Can't Trust Google Inc. Synopsis: This is the other side of the Google story. In Search & Destroy, Google expert Scott Cleland, shows that the world's most powerful company is not who it pretends to be. Google pretends to be a harmless lamb, but chose a full-size model of a Tyrannosaurus Rex as its mascot. Beware the T-Rex in sheep's clothing.