Google should one-up Amazon and get into the Datacenter As A Service market. Service segments: normal cages (I'd rather lease cages from Colorful Pipes, Inc than Equinix), pay-n-go turnkey same-hardware in 3 georedundant locations, and lease-by-rack in multiples of 10 pre-populated racks (racks specified as compute-only or storage-only with 10G interconnects between racks).
It's doubtful that they could directly compete as is. Amazon has done well with their services because they eat their own dog food. From everything I read Bezos basically forced them to build this system and consume it for Amazon's own needs. Google has never taken this approach with their APIs and the difference shows very clearly when you consume these products.
I assume you're referencing stevey's rant, and if so you're conflating two issues. Steve was talking about the use of APIs between services at the application level, not the API for the datacenter/cloud as a platform.
I think cr is talking about how you get "baby bigtable" and "baby cloudscale" that are copies of internal services, but not what core platforms use themselves.
EC2 is relevant today, but it will become less and less relevant as the Platform-as-a-Service services (S3, SimpleDB, App Engine, Heroku, etc) get better. There will reach a point where fewer and fewer companies will actually use VMs directly. Seems like a reasonable play for Google to sit this round out and focus on winning the next one.
