So, who does this hurt? Microsoft (NASDAQ:MSFT) for sure, but it also messes with all sorts of other companies & markets, ranging from domain hosting (no more charging for additional mail space), to business application services (no more ... business), to storage (no more under-used drives in the small business office to deal with attachment junkies).
This is a big and ballsy play on Google's part -- especially the "free" part -- with Writely and others apps almost certain to get rolled in shortly, you can expect more pain to come for competitors. And when the premium version comes later this year, with Google charging for larger storage etc., the revenue will really begin to get sucked out of the small business software market.
I can't resist one semi-cynical comment: There will be those who roll their eyes at Google's inclusion of Google Talk in the mix. After all, the service is going nowhere, and most users already have IM services, so Talk's inclusion could be seen as a kind of benny tossed to the Talk kiddies at Google.
Finally, and this is mostly directed at people sending "Enterprise 2.0" business plans my way: If you're thinking of doing something squarely in Google's enterprise-lusting aim, you need to ask yourself one question only: Why? What makes you think that you can do it so much better than Google that the inevitable free Google Apps product doesn't kick your ass out of the office market? I'm not saying it's impossible, and there are plenty of things outside Google's aim -- including apps that are much more social by design than what Google's built -- but the gate is 99% closed for bringing vanilla,mass-market office apps to the web.
GOOG 1-yr chart: