Google goes for the jugular
I've been playing with Google Spreadsheets and it appears to be a pretty impressive offering. The hosted service is a completely collaborative workbook environment that can take XLS files, allow multiple users to edit them, and spit out XLS files on the back-side. GoogleTalk (its web chat facility) is integrated throughout the application, so that you can interact with other parties who might be updating the workbooks.
The user-interface is very impressive: Google is pushing the limits of AJAX to deliver column-width slider bars, cell merging, and a webby version of the Windows File menu.
On the down-side, the interface formatting options appear quite limited compared to Excel. For a collaborative environment, it doesn't seem to have the sophisticated security options of, say, a BadBlue, which offers read- and write-protection at granular levels for each user. The workbook also is limited in size - if you upload a workbook, you get a slightly larger "palette" to work with than the Excel file you started with. You can't just cursor down a hundred rows to begin a scratchpad experiment the way you can in the thick-client app.
All in all, though, it's a very impressive effort and one that Microsoft has got to be tracking at the highest levels of the organization. If there's a NORAD-style control center in Redmond, I'd bet Gates and Ballmer are barking at minions at this very moment.
Where does Google go next? My take is the same as it was in December. I believe Google will offer hosted versions of major Windows applications (remember the Writely acquisition, which gave Google a collaborative online version of Word?). Then, when you least expect it, watch for the Google Office Appliance - a bright yellow box that any company can buy, which will offer the same sort of functionality... while keeping files inside the firewall.