As Mary Jo Foley recently noted, Microsoft has been telling its partners that there's no way they should lose a single Office 365 sale to Google. What vendor could seriously make that argument? You win some and lose some. At Microsoft's recent partner conference numerous sessions were devoted to selling Office 365 against Google Apps.
For Microsoft, losing Office 365 deals to Google Apps is losing the platform. Simply put, it's much harder to win lost customers over again than to keep them in the first place. Microsoft is selling value over price, noting security concerns and compliance as well as flexibility over Google Apps.