The Wall Street Journal has an article entitled The Men Who Came To Dinner, and What They Said About Email which contains the following excerpt

"Email is one of the liveliest niches in tech right now. Google, Microsoft and Yahoo all view it as a key to winning new customers and making money off current ones. And so they are innovating with new email programs and services all the time. Since all three companies' email teams are in my neck of the woods, I thought it would be fun to have the heads of each team come over one night for dinner and conversation. The three companies were good sports and agreed, in part because I said I wasn't interested in a shouting match.

As it happened, Google's Paul Buchheit, 29 years old; Kevin Doerr, 39, of Microsoft (no relation to the venture capitalist) and Ethan Diamond, 34, of Yahoo were all on their best behavior. Whatever they may say about their competitors at work, at my table they were gracious and complimentary. Gentle teasing was about as far as they would go.

The evening began with even the Microsoft and Yahoo delegates agreeing that much of the current excitement in the email world can be traced back to last year's debut of Mr. Buchheit's Gmail. The program had a fast user interface with a fresh new look, along with a then-remarkable gigabyte of free storage.

Mr. Buchheit said he started working on Gmail after observing that other email programs were getting worse, not better. Microsoft's Mr. Doerr said that at his company, Gmail was a thunderbolt. "You guys woke us up," he told Mr. Buchheit. Yahoo's Mr. Diamond, then at a startup with its own hot, new email program, said Gmail was the final impetus that Yahoo needed to buy his company.

Mr. Buchheit responded with a victory lap. "We were trying to make the email experience better for our users," he said. "We ended up making it better for yours, too."

The evening wasn't all a Gmail love-in, though. The Microsoft and Yahoo representatives said their many millions of users might not accept some of Gmail's departures from email norms, such as the way the program groups messages into "conversations." The two men also razzed Mr. Buchheit a bit, saying that it had been easy for Google to promise a lot of storage to its users because it carefully controlled how many users Gmail would have by requiring an invitation to get an account."

As someone who has to build services which compete with Google's the last statement in the above excerpt resonates with me. I tend to think that in a number of their products such as GMail, Google Talk and even Google Pack, the folks at Google are practising the lessons learned from articles such as Joel Spolsky's Fire & Motion. In the article Joel Spolsky argues that large companies like Microsoft tend to create technological imperatives that force competitors to respond and keep up thus preventing them from focusing on new features.

Examples of Google practising Fire & Motion are somewhat different from what Joel Spolsky describes in his article but the ideas are similar.  Google tends to create initiatives that are either much more expensive for their competitors than them to provide (e.g. giving users gigabytes of storage space for email but limiting sign ups on the service) or would be detrimental to their market share to compete with (e.g. allowing non-Google clients to access the Google Talk servers). I've had co-workers joke that for every dollar Google spends on some of its efforts, its competitors are forced to spend five to ten dollars. Here is a back of the envelope calculation that illustrates this point.

Of course, these numbers are off because they are based on estimates. Also I think the Hotmail numbers should be somewhat lower since I haven't confirmed that we've rolled out the 250MB inbox to every market. The point should still be clear though, Google has forced its competitors such as Microsoft and Yahoo! to spend orders of magnitude more money on storage which distracts them from competing with Google in the places where it is strong. More importantly its competitors have to provide from 10 to 20 times the total amount of storage Google is providing just to be competitive. 

This is often the dilemma when competing with Google. On the one hand, you have customers who rightly point out that Google is more generous but on the other the fact is that it costs us a whole lot more to do the things Google does since we have a whole lot more users than they do. The cool things about this is that it forces to be very imaginative about how we are competitive in the market place and challenges are always fun.