Google Spreadsheets will be announced today. Google also recently acquired Writely, and On-line word processing company. All the pieces are coming together for Google to compete directly with free open source offerings such as OpenOffice and Sun's StarOffice. Last year there was speculation that Google and Sun would team up to offer a Google version of StarOffice. Google has instead decided to go its own way and compete with all the open source projects in the spreadsheet and word processing space.
C/Net says "Google spreadsheets turns up heat on Excel" I don't think so. Microsoft Office is a powerful, industrial strength, client based, information worker productivity platform. Microsoft Office is moving beyond just being a collection of applications (Word, Excel, PowerPoint) to being a server based application platform for ISVs. Lots of companies run their business on Excel spreadsheets. Now creative start-ups are using Office as a front end User Interface to a whole variety of business applications.
So, while the headlines may scream Google Spreadsheets is competing with Microsoft Office, the more accurate statement is that Google is competing with OpenOffice. Remember, free and open source alternatives to Microsoft Office have been around for a long time. They serve a different segment of the market. Google is competing with Open Source and going after that market.