Obstensibly to collaboratively edit documents anywhere, but in reality, the new paradigm in software distribution, installation and upgrades
What does Writely do?
Writely allows you to edit documents online with whomever you choose, and then publish and blog them online.
About the only thing missing is a Powerpoint clone.
So what's with all this web based office productivity software? Or even sites like Flickr? I see this as the confluence of three things happening at once.
First off, in most cases, it's cheaper to ship a program via wire than it is via a disk. A producer does not need to invest in a ton of phyical material and the equipment to copy the bits to said physical material, nor does it need to invest in boxes, paper, postage and shipping. Of two programs sold at the same price, one only through a website, and one only through a retail chain, the company selling the program via the website will experience a higher profit margin than the company selling via the retain chain (in fact, about the only time shipping bits via a disk is cheaper is when the program being sold is of sufficient size that it would take longer to ship it via wire than by FedEx).
Second off, a producer of commerical software is under attack from three different fronts. First are the software pirates, that sell illegal copies of software at dirt cheap prices (why not? They didn't have to spend any money developing it, and copying bits are cheap cheap cheap). The more popular the software is, the more likely it'll be pirated. Software producers do have some recourse in organizations like the BSA, which, on the behalf of software companies, can levy hefty fines on corporations (and to a lesser degree, individuals) that haven't properly licensed the software they use, but in emerging markets like China, there isn't much a US or even Europoean software company can do.
The second front is the relunctance of customers to actually order and install upgrades. It's not like there's a vast difference between Microsoft Word 97 and Microsoft Word 2000 (much less Microsoft Word 2003) to warrent the price of an upgrade. Especially when upgrades can be disruptive (not always, but there are times when it is). Let's face it, the largest competeter to Microsoft is Microsoft of three years ago.
The third front is open source. There are more and more free (as in beer) alternatives to the major software packages and they are improving. And while they might not be able to compete at a high professional level (the GIMP vs. Photoshop? No contest: Photoshop. On price? The GIMP) but for most people, the free alternatives are Good Enough™.
And the third confluence relates to open source. There are several open source licenses out there, and one, the GNU General Public License, will tend to drive the actual purchase price of software towards zero. Also, companies that release programs licended under the GNU GPL are required to make the source code available at nominal charge, to those that have bought and used said program (heck, even if you just use one library licended under the GNU GPL you have to make the rest of your source code available in most cases). So it's a bit more difficult to make money using open source.
Google (along with other companies like Yahoo, who own Flickr and Six Apart, who own VOX) have found a way around these problems. There's no software to actually ship, since it all runs on computers owned and operated by the respective companies and all are accessed via the web. Second, there's no issues of customers not upgrading because the customers don't install the software to begin with. They can leverage the vast amount of code available as open source and by being careful to avoid any GNU GPL libraries, they can avoid having to give out the source code. Revenue can come via advertising, or by offering access to more functionality (much like LiveJournal).
And hey, if it causes Microsoft fits, so much the better.