I think that this move will not bring the intended effect on Google's bottom line. The core user that is affected by this change is the enthusiast, setting up a custom domain for email for their family, opensource project, etc. This enthusiast user was advocating the Google services. I count myself as one such user whose recommendations has led at least 3 new small business customers for Google. Also their decisions to use Android over the competing platforms.

Now Google loses all of that. And since it is highly unlikely that they will discontinue their free Gmail, Calendar, Drive offerings the end of free custom domain accounts is unlikely to save them any money on hosting and will represent a net loss to them in the long run.