Now, if you are a customer organization and you happen to purchase computers and software for your people the difference can be significant. Office software from Microsoft adds hundreds of dollars to the cost of a new PC, while Google applications are available for free (with ads) or $50 per year (without). When purchased in volume there isn't a huge price difference, but the way the software is paid for can be significant — all up front vs. annually. That kind of difference can cause a lot of heartburn for the competition.
I believe we're moving toward a time when software will be rented. Period. If that's the case, then the Google and Salesforce.com alliance is just an early indicator, and more will follow. Also, we've said for a long time that suppliers of conventional software solutions are facing a major disruption in their business models, and this is where the rubber meets the road.
The other question in my mind is what happens to Salesforce.com and Google? Do they merge? I am not a fan of such a merger, because the point of on-demand and platform independence is that mergers are not necessary for making software run well. Of course, the financial benefits of mergers are still available, though there are many business school studies that show mergers frequently do not deliver the benefits of economy of scale and higher profits that pre-merger optimism suggests. I believe that Salesforce.com and Google would be better off (as would the industry) if a merger did not materialize. Their separateness would be a validation of the on-demand technology model, and it would spur the industry ahead on a very different track than the on-premise model many of us used in the past.