Previously on SmallBusiness.com: We’ve been tracking the ways in which file storage on the cloud (vs. on your computer’s harddrive) is becoming a battle ground between Google and Microsoft in their quest to attract businesses, large and small, to their subscription-model versions of work-related productivity software (Google Apps for Work vs. Office 360). Most recently in their battle, Microsoft and Google both announced they are offering unlimited file storage for the $10 per user/per month versions of each company’s browser-based productivity suites.

Today, we pick up the story with an announcement by Microsoft and Dropbox.

Yesterday, Microsoft and Dropbox jointly announced they are making it easy for users of Office to use Dropbox for file storage and users of Dropbox to use Office apps. Starting early in 2015, each company’s web interface will support the other’s for editing, sharing, etc. Even sooner, in the next few weeks, Office apps for iOS (iPhone, iPad) will have direct access to Office documents stored on Dropbox.

Why?

At this point, you may be asking yourself, “Don’t these services compete?” It’s okay to scratch your head and wonder out loud:

1. Why would a small business user pay for a Dropbox account when they can have a Microsoft Office account with unlimited storage?
2. Why would Dropbox encourage users to start using a service that has, as one of its features, something that seems to compete with Dropbox?

Here are the answers to those questions, and more.

Why would a small business user pay for a Dropbox account when they can have a Microsoft Office account with unlimited storage?

We know this is confusing, but Microsoft Office comes in many versions and two primary models:

(1) A subscription method called Office 365 that doesn’t come in a cardboard box.

It’s a web application you access through a browser or app on a mobile device. If you use the option to pay $10 per month per employee, it comes with unlimited storage. (So, this is the unlimited storage version).

While growing, at this point, only a small percentage of Windows users have this “web app” version of Office. If you use Office 365, you may not care as much about this announcement as people who fall into the next category. However, Microsoft recognizes that people savvy enough to use an online version of Office may be the kind of customer who has been using Dropbox for years and has lots of uses for it that go far beyond saving Office 365 files. Again, unlimited storage features may not be that appealing to those users who have dozens of other apps interacting with Dropbox. In other words, Dropbox dominates a part of the cloud that’s all about file storage and organization.

If you want to play on this playground, you need to understand that Dropbox brought the ball and made the rules. This is something Microsoft understands all too well. And so, under new leadership, Microsoft accepts the fact that working with Dropbox in ways that include file storage is the price of admission.

(2) The familiar Microsoft Office that comes in a box (unless you pay someone to manage all of your computers, and in that case let’s just say, it comes from elves).

If you have this type of Office, it works on your computer and you store files on your computer. It works even if the internet does. Millions and millions of individuals and businesses and large corporations and governments use this type Microsoft Office along. A big percentage of them save documents to Dropbox. This group is the audience for the announcement, as you’ll learn in the next section.

Microsoft and Dropbox have a common enemy

Why would Dropbox encourage users to start using a service that has, as one of its features, something that seems to compete with Dropbox?

While Apple could be a direct competitor for the small business and enterprise markets that I’m about to explain,* there is only one company Microsoft views as a direct and viable competitive threat for its lock on the enterprise (including governments and other large organizations) market for productivity suite software. And that’s Google and its Google Apps for Work platform.

Likewise, when Dropbox surveys the competitive landscape, it can see only one competitive threat. And that’s Google and its Google Drive platform.

Both Microsoft and Dropbox have dominant positions in what they do. And they are complementary (at least today) in the services they provide. And unlike an era of egotistical leadership that would have pretended Google was no threat, Microsoft is now run by people who know the reality that comes when you dismiss potential competitors over and over, just to see them take over markets that could never have been taken over.

What this does for Dropbox

Dropbox is popular because of its drop-dead simplicity across any platform a user may want to access data. As the company has grown, it has provided means to organize those files in ways that work nicely with apps and software that are created by others. At the same time, Dropbox has added applet-features that enables the user to organize and view photos and video without the need to launch another app.

However, while offering the means to use other apps and view digital material stored on Dropbox, Dropbox isn’t heading down the path to becoming a web applications company. Even if they were going to add some apps to better use their storage service, they aren’t likely to have a front-end office productivity suite.

Yet if they are going to compete with Google in the coming era of cloud applications in the enterprise, they need a partner that can provide what Google Apps for Work does.

So there you have a perfect motive, if this were a murder mystery.

But it’s no mystery: Microsoft and Dropbox both are at war with Google. And despite their potential for competing with each other, that’s down the road a few years. For World War II history buffs, we’re at that point where Britain and the Soviet Union decided to join forces against the Germans and put off until another day all their differences over communism vs. capitalism.

*Apple has the web applications and the cloud storage (iWork and iCloud) that does everything that Google and Microsoft do, but even though the word “work” is included in their collective name, the company’s consumer marketing focus works against them when it comes to the “productivity software” for small business (and large business) category. While millions of small business owners and employees (including the ones at the small business who bring you SmallBusiness.com) use Apple products all day and into the night, the purchase of that equipment and other Apple-related services has been because Apple makes great products, not because of its channel sales or reseller networks that drive the majority of small business and enterprise technology decisions.