Earlier quoted context omitted.
Search, which provides the majority of Google's revenue, is precarious because there are very low costs for someone to switch to another service. To combat this problem, Google started providing all these associated services -- Finance, Reader, Blogger, etc, etc -- so that people would begin to use their Google ID as a significant component of their online identity. These services were never supposed to be profitable…
They built Gmail. People need it desperately. So far, no one distrusts it or has any reason to. That's their identity moat.
To say people don't distrust google/gmail shows your naïveté and/or your rose coloured google glasses.
Search and the collaborative part of google docs (ie multiple concurrent editors on a document) is the only thing where it's hard to find a true competitor that you can self host, not to mention hosted solutions.