I don't think Google is all that interested in on-premise software. On-premise is valued by sysadmins because they perceive themselves as in control of the system. Once online companies can start delivering software that equals the reliability and UI quality of local apps, you're going to see a huge migration away from locally maintained software. Obviously, that's a tall order and not something we're going to see for a few years. But give the cloud another decade and people will wonder that every mid-sized organization had their own help desk and IT staff.
Lots of IT folks today like being in control of their own hardware and focus on that aspect of running their systems locally. They argue that management will see things the same way. Ten years ago, I thought pretty much the same thing: "Surely, no organization that cares about its data will let themselves be locked into proprietary software. That is why open source and open formats will soon dominate corporate IT." I was wrong. Open source has proved itself, but most organizations today still run a proprietary IT stack. Any sysadmin who thinks that management cares that Sharepoint and Exchange are running on local hardware is fooling himself. Management will be happy to outsource the IT division to cloud services run by Google or Salesforce or Microsoft or whoever offers what appears to have the best ROI. Once cloud software reaches the reliability and responsiveness of desktop apps, they'll demand the infrastructure be switched to the cloud in a heartbeat. No more desktop support and server rooms in the basement. Just plug your monitor and keyboard & mouse into the network and go. Microsoft realizes that their days of locking in customers via proprietary local apps are numbered. The future of vendor lock-in is the cloud, and that is the market that they, and Google, and others, are aiming for.