Google has been so coy about its plans for Google Apps, its evolving online office productivity suite. While the suite slowly took shape as a free, online alternative to Microsoft Office, Google executives insisted that they weren’t interested in competing with Microsoft’s ridiculously dominant product. But what else could they have been doing when they offered up Presently, a presentation application that appears to compete directly with Microsoft’s PowerPoint? It looked like the last ingredient in the so-called Microsoft Office “killer,” which analysts have observed Google has slowly been building.

Google CEO Eric Schmidt announced a new corporate motto at Google’s annual shareholder meeting last Thursday. The motto: “Search, Ads and Apps.” The inclusion of the word Apps implies that its growing arsenal of online applications will become a larger focus of its business. And that means Microsoft is officially on notice. As John McBride wrote for ars technica, Google is finally “cutting the ‘but we’re just a search engine’ crap and declaring what everyone already knows: They want to eat Microsoft’s lunch.”

Yes, Google is going to compete in the software market, after all its assertions to the contrary. And the rationale behind using on-demand Google Apps rather than on-premise software from Microsoft is so simple, according to Schmidt: Using Google Apps allows you to keep your data with a “trusted partner” rather than on your personal computer, which could crash at any time and eat all your work.

“If you think about it from a data perspective … What you would prefer is a trusted partner to keep all the information and have it for you on every device,” Schmidt said.

Of course, Microsoft isn’t taking all this sitting down. Earlier this month there was some buzz about possible merger talks between Microsoft and Yahoo Inc. The usual round of denials followed the reports, but clearly Microsoft knows Google is spoiling for a fight. Whether it’s a battle over Microsoft’s dominance in the software market or over Google’s dominance in online advertising, these two giants are going to war