This is a very significant move, and starts with the information. First Google lets you find information, in the process becoming the standard interface to the net and the first port for information in general. Then functionality is added to the information – not as advanced as what you can get on the desktop, but good enough for a start.
The important issue here is that this is a potentially disruptive innovation because it allows people who formerly were not able to change/process/analyze information to do so – but with technology that will be deemed inferior by those that are the best customers of the existing software vendors. As Anil says, the 500 most important customers of Microsoft wants less change and other kinds of functionality than the infinitely larger market of individuals with smaller investment budgets.