Microsoft is to launch a small business software product, in direct competition with Sage's ubiquitous Line 50.

The small accounting package, known as Office Accounting 2008, is set to target Sage's 700,000 customer base in one of the biggest challenges to the status quo in accounting software of recent years.

In addition to offering the product free to businesses, advisers joining Microsoft's new Professional Accountants Network will also be entitled to a free copy. The professional version will hit major retailers early next year, priced at £149.

While software rivals have had several years to brace themselves for the launch, Sage, in particular, will be unsettled by Microsoft's offer to existing Sage customers of a data migration path, to make switching to the new software easier.

'I wouldn't expect to see a huge shift in existing customers, but Sage will no longer be the default. Customers will now have a choice Ð perhaps Sage will lose out on new sales,' said Mark Holland, Baker Tilly's head of IT advisory services in the South.

Holland believes the profession will be more healthy for having an alternative to Sage, Iris and MYOB.

Microsoft has certainly not rushed its foray into the UK market, having launched in the US in 2005.

Sources at first suggested a 2006 launch for the UK market, which pushed out to 2007 as the IT giant focussed on the US market. But Rajat Taneja, general manager of Microsoft's small business applications and services, insisted this week that: 'The launch is pretty much in line with planning'.

While Taneja is confident of the product's success, Microsoft will not make public predictions of its penetration into the UK, as it 'starts from scratch'.

The product has been downloaded two million times in two years in the US, which includes a substantial number of UK downloads over that period. Tens of thousands of advisers have joined PAN in the US.

The latest version boasts a range of online services, which could see more interactive movement of data between accountants and their clients.

As clients grow and manage their own finances, Microsoft hopes they will move to the more sophisticated Dynamics range.

'We want businesses to use a structured accounting application, and we want to help them grow and they can grow with us into our Dynamics products,' said Taneja. 'We want accountants to recommend it. That community's important.'

Paul Stobart, Sage CEO for UK & Ireland, said: 'We welcome the competition but believe we have a unique and compelling offering for UK businesses, including start-up and small businesses, with whom we have worked for over 25 years.

'Our business management software is more widely used, and is recommended by more businesses and accountants, than any other.'