Privacy doesn't have to be an issue if Google starts to package all of these apps into standalone appliances.
They've been selling their search appliances for years now for use on corporate intranets -- why not sell the Google Appliance v2, with the same search engine functionality, but the added bonus of e-mail (GMail), companywide IM (GTalk), and an online, collaborative office suite (Google Spreadsheets and Writely)?
Being able to buy a box to slap in a rack and have it just work and provide these services would be a real boon to many IT shops.