David Berlind has written two great articles on just what Google is really up to. You'll want to read them both. The first article is a very detailed tale about how a business user of Google can set up the equivalent of a very fine, easy-to-use and very cheap collaboration space. Set aside 20 or 30 minutes for this one -- it's definitely worth it -- not just for the details of what's there, but for Berlind's assessment of what Google could do with it.
The second article is his thinking about what Google thinks it might need to do to have a fully fledged competitive offering, keeping in mind that they're not trying to compete with Microsoft Office 2007 and SharePoint, etc., etc. but rather with a notion of what users are doing in a new, on-line, web-based context, with much lighter-weight, but much more collaborative tools.
Since I'm working on a White Paper on just that subject, I read every word of both articles very carefully. I agree with much of what Berlind says, although second guessing Google based on what they've done so far isn't always easy.
I'll be writing a lot more about Office 2.0, an attempt to consider all the office tools, from traditional desktop suites to the lightest web applications, and where and how they might fit together. I'll be posting a description and outline of the White Paper on line shortly, in case you'd like to know more about it.