Google's enterprise Gmail service is now a viable alternative to Microsoft Exchange Online and other cloud-based email services, according to research firm Gartner.

The two companies are battling it out for key government and business contracts, particularly as Microsoft expands its own cloud-based email and collaboration services in the public sector.

After five years on the market, it looks like Gmail has become a real contender. The cloud e-mail service has built considerable momentum in companies with more than 5,000 seats, says Gartner, and now holds almost half of the market for enterprise cloud email.

"The road to its enterprise enlightenment has been long and bumpy, but Gmail should now be considered a mainstream cloud email supplier," said Gartner analyst Matthew Cain in a press release.

Gartner took a look at Gmail's position in both the enterprise e-mail market, where services are hosted on servers within the company, and the enterprise cloud e-mail market, where services are hosted off-site. The latter is still in its infancy, said Gartner, and represents only 3 to 4 percent of the overall enterprise e-mail market.

However, though Gmail only holds 1 percent of the enterprise e-mail market, Gartner expects the cloud e-mail market to be a growth industry, reaching 20 percent by 2016, and 55 percent by 2020.

But Google still has a formidable competitor. Recently, Microsoft's e-mail service was selected by the city of San Francisco as home for 23,000 government employee email accounts. Google is also suing the U.S. Interior Department over its decision to consider only Microsoft's cloud computing business suite for a contract to provide e-mail and collaboration technology to the department's 88,000 employees.

And, Google's "journey to enterprise enlightenment" is not complete, said Cain.

Large organizations with more complex e-mail and security requirements, such as banks, say Google is resistant to develop features that will only service a small segment of its customers. Concerns about security and compliance could also "thwart" Google's relationships with larger organizations, he said.

Microsoft also has an edge because it can offer a hybrid service, where some mailboxes are hosted on-site and some are located in the cloud -- an option that provides more security for those concerned about the stability of the budding cloud market.

Microsoft and Google have taken public jabs as they fight for cloud e-mail clients, with Google highlighting Microsoft's reliability issues and Microsoft touting its privacy policy.

Despite the bickering, the two companies are likely to remain the two top providers of cloud e-mail for the enterprise, according to Gartner.

"The intense competition between Microsoft and Google will make both vendors stronger and enable them to apply cloud expertise to other enterprise cloud endeavors," said Cain. "The rivalry will make it difficult for other suppliers to compete directly in the cloud email and collaboration space."

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