FORTUNE — A few years back, many doubted Google’s ability to sell enterprise-worthy applications. Today, it’s safe to say that Google Apps for Business has become a viable alternative to server-based email and other applications, much like Apple’s (AAPL) iPhone is now a viable alternative to BlackBerries (RIM) and other enterprise-grade smartphones.
Just ask the several hundred IT managers currently attending Atmosphere, a two-day gathering for Google’s (GOOG) business customers, held at the Googleplex. Since launching Google Apps for Business in 2007, the search company has put a lot of effort into wooing CIOs by making the migration to Gmail, Docs and Calendar as effortless as possible and adding new features and increased support for enterprises. (The latest additions to Google Apps for Business, announced at Atmosphere on Monday, include more mobile device management capabilities and 24/7 phone support for business customers).
These are all just baby steps along the path of getting significant enterprise market share, but Google has made a lot of progress. According to the company, the result of these efforts and the general trend towards cheaper cloud-based offerings, thousands of businesses have switched from Microsoft (MSFT) Exchange to Google Apps in recent years.
Of course, the majority of those customers are still small businesses, not large companies. Getting bigger corporate customers to “go Google” isn’t easy — even when you treat them to a two-day event complete with yurt-like demo booths and free snacks.
Why it proving so difficult? Microsoft’s Exchange servers are pricey, but they’re also well-entrenched in big businesses. And as Nader Karimi, CIO of fashion house BCBG Max Azria Group, told me at the conference, his company’s employees are used to the look and feel of Microsoft’s email client, Outlook. In lunch with members of the press at Atmosphere, even Dave Girouard, VP of Google Apps, admitted that moving to the cloud is a big change. And just because there’s mounting pressure to move to the cloud doesn’t mean it’s for everyone (or every application). What’s more, Microsoft — along with other competitors — has its own cloud-based offering, which could end up not just cannibalizing Exchange but also taking on Google Apps for Business.
Still, it’s clear Google is increasingly becoming a bigger threat to Microsoft (one CIO at Atmosphere said he got a call from a Microsoft “Google Compete” team after he notified them he was switching to Google Apps in 2009). As for Microsoft’s own cloud-based business software, Office 365, it’s still too early to tell how it will fare.
In the meantime, Google is adding more and more functionality to its Google Apps for Business. The company has been talking up its plans to make Gmail more social and to develop an enterprise version of its newish social networking tool, Google+, with more security features. Like many things at Google, the enterprise market is still a work in progress.