The idea that Google/MSN/Yahoo is bad news for ESRI is based solely on the whiz-bang-flash of the new mass awakening to the fact that things can be put on a map. Anyone who thinks that Google is going to extend Google Earth to the point of enabling a city to manage it’s parcel base is delirious. Apart from the fact that it’s very difficult, there is no benefit to them. While Google does have a staff of geniuses, this does not mean they can simply whip up a full fledged professional GIS system. As for ESRI - I think they can only benefit from the increased attention paid to mapping in general, and GIS in particular. Once the public really starts to “get” maps, ESRI will be well positioned to facilitate “doing” something with the map - besides just plotting a point location.
Dave Bouwman has just written a great article on the relationship between Google/Microsoft, ESRI and GIS as a whole. Dave hits it right on the head with ArcGIS vs Google Earth (or similar “consumer GIS” programs). Some have said that ArcGIS is the world’s largest software application built with Microsoft’s COM and while that may or may not be true, the plain fact is that ArcGIS has so many tools at the ready and these tools have decades of development behind them, that Google/Microsoft would be very hard pressed to compete. Now at the consumer end, that is a different story and it may be that GE and MapPoint eventually close the gap toward being a low end GIS tool, but even then you have to wonder about the quality of analysis that these tools may give the user given the lack of experience with GIS.
Time will tell, but as Dave points out so well in his post, Google Earth and ArcGIS are aimed at two very different markets and there is almost no overlap between them.