This is a pretty pessimistic view. Customers are self-interested too: they want free content and services, but they also want absolute privacy, to ad-block everything, and generally cut off any possible revenue stream. This seems like it leads to a sort of local maxima where you produce the minimum quality required to drive users, with as little cost as possible.
By cutting off ad-supported free users, Google is attempting to pursue a global maxima: rather than making the best 'free-enterprise email/document sharing/whatever else it does because I only use it for email', they're now free to focus their efforts on paying customers. I suspect the one area where this will impact the most is customer service; Google is traditionally horrible because they're loathe to waste money on minimum wage call-centre employees to support loss-leader products. Now that Apps for Domains will be a first-class, revenue generating product, maybe they'll answer the damn phone.
By cutting off ad-supported free users, Google is attempting to pursue a global maxima: rather than making the best 'free-enterprise email/document sharing/whatever else it does because I only use it for email', they're now free to focus their efforts on paying customers. I suspect the one area where this will impact the most is customer service; Google is traditionally horrible because they're loathe to waste money on minimum wage call-centre employees to support loss-leader products. Now that Apps for Domains will be a first-class, revenue generating product, maybe they'll answer the damn phone.