since data is encrypted server-side and Google manages the keys ( although the fact that they think they won't be obligated to hand the keys over to the gov't is bullshit). However, what I think is important to see in this story, is that Google is responding to pressure from the public to take privacy and encryption more seriously. This is an opportunity for security and privacy activists to push for real security solutions for user data storage, that involve strong *client-side encryption* of data.
I see it purely as a PR stunt, a pre-emptive strike against services that are bound to spring-up, offering *real encryption* and *real security*. Now Google can say "we're already offering that" and good luck with explaining to John Doe why this is not quite the same...
With the same dev money Google could be funding open source projects like tahoelafs, p2p messaging, etc that put the keys in the hands of the user for easy use. Yet no, they compete against them. They're a business, they've become and catered to more corporate/gov base, that's normal, write around them and claim the user base.