There are some caveats.... Part of the allure of GAE (google apps engine) is that offers the ability to perform single sign-on for your application through google accounts, you can also tie in google talk and gmail for communications, etc etc. Google offers a way to use open source code for your app (java/python) but once you start to integrate your app with Google's web services you are just as locked in as you would be at M$. Sure unlike M$ code you CAN drop the google portions and rewrite new versions and migrate the JAVA portions, but unless Google really is making life difficult you wont go through such an effort.
So be warned... Don't mix your app code with proprietary API's like Google Apps, or be prepared to pay the toll to infinity. Will developers be able to resist the easy path and make their own modules, or just re-use the Google API?.... thats right so get used to BigBrother being around
That said I also think that history should show us that when M$ says a competitor is small or no threat, it means M$ has already lost the game. From this article my take away is that M$ sees AWS and GAE as the two current owners of the cloud market.*
*Note: The article doesn't really cover the complexities of cloud services. As it stands Google offers PaaS (Platform as a service.) which a environment to develop and host applications on. AWS (Amazon Web Services) is IaaS (Infrastructure as a Service) Basically Amazon rents on-demand web servers through a easy to use and manage interface.
Both let you scale up applications dynamically and offer them through the cloud but are very different offerings and attract for now mostly different types of customers.
Granted they are likely to move towards competing more directly with each other over time.
MS Azure (as I understand it) is offering both a PaaS and IaaS (and SaaS as well) solution. However what they "appear" to be selling is primarily hosted MS servers (or their Office SaaS solution).
SalesForce is a niche player to some degree, but they have been milking their customers with very high rates, so they do have several billions of dollars of revenue in their war chest to fight back against GAE engine. Another player is VMware with their vFabric, (which Salesforce is reselling). Oh and did I mention that you can run Google apps on Force.com, or Force.com apps in GAE?