What free office suite is the most compatible with Microsoft Office?
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The answers above already address two suites: OpenOffice.org (which has now split into Libre Office), and Google Docs. I mainly use the former and have few problems receiving a variety of Microsoft Word and Excel documents. In the past I have also used KOffice and Abiword to handle a number of particular issues where they handled the conversion better, e.g. Microsoft Works and WordPerfect files. For the files I receive these exceptions are now rare and I no longer install these additional tools as a matter of course.
Other considerations for compatibility:
Macros. As well as the formatting of imported documents you may also need to consider macro functionality. I would include with that functionality such as embedded documents.
Platform. Using an office suite on one platform (operating system and supporting tools) may produce different results from using it on another. This may be because of different frameworks on different platforms, different features supported on one platform than another or availability and support levels for some platforms. These factors affect all the suites, not just the free ones.
Fonts. Fonts are often an issue. Suites and platforms differ in their support and use of different font types, for example OpenType or Multiple Master PostScript. Fonts freely available with one office suite may have to be licensed for a suite on a different machine. Even on two machines where the different software is equally capable of handling the fonts, the fonts are available and have matching names their metrics may differ between versions and hence produce different output.
Exporting. Compatibility when importing Microsoft Office documents may be different from compatibility when exporting to Microsoft Office formats. Are you moving files one way or both?
(a) Most file formats change over time in specification, practice or both. We have seen this recently with the developing support in the free suites for the XML-based formats such as docx. This can produce 'bumps' along the road to compatibility.
(b) As well as inferior support for new file formats there may be gaps in support for old formats.
(c) Some file formats have no free tools that use them, for example Microsoft Publisher files, so if you receive those you need to keep a copy of the software to hand unless the conversions provided by a convenient friend or by an online service such as Zamzar work for the files you receive.
Internationalization. Support for this varies between office suites.
Your workflow is likely to be personal to you. To decide on a free suite you may want to collect a broad coverage of the files you receive and send and divide them into two groups: ones where the exact format is important (e.g. they want you to print the file for them) and ones where it is not critical (e.g. you only need the content for information or it is an article for a magazine that you edit and hence you would change the format anyway). The first group can be tried in several free suites in a search for a convenient one (or two) that deliver the level of functionality required. The second group just needs reliable conversion so that no content is lost, there is indication of any critical formatting (perhaps italics, bold and large or coloured print; graphics shown in appropriate positions) and the documents are functionally correct (e.g. spreadsheets give correct results).
Over time you might at least be able to convince people who send text documents to separate content and style (I'll refrain from making a case for TeX, LaTeX or even OpenDoc but plain UTF-8 text and a PDF/X to show the layout, if it matters, would be a nice start), but I doubt that will come soon.
Google docs is getting more and more compatible with microsoft office, they recently added support for office 2007 file formats (xlsx etc) and the few spreadsheets iv uploaded have actually worked perfectly, formatting and formulas included.
Unless you are heavy on the design and formatting it's one of the most useful office suites out there and it's likely to continually improve.
It does however have serious problems with word formatting but even there it's rapidly improving. One of the big drawbacks that I personally have found is that it does not have a mode for page break.
Word 2007+ has a support for .odt files - the one which is most free-software office suites understand - so make sure Your Microsoft Office is not of outdated 2003 version.
As to free-software office suites - I'd choose LibreOffice.