I posted in an article about Google's data obsession that Google products "have no soul." (And was downmodded!) This is an example of what I meant. They are so data driven and engineering focused that I think it was inevitable we'd see them release a product that consumers freak out about.
Putting your toe in the water and using data to iterate your way out of problems works great for many of the problems we're trying to solve. But, this problem, they decided, required a "big bang approach", since invite only won't generate the network effects. So, you had to get it right on the first try. For problems like this, you need a visionary decision maker with an understanding of human beings and intuition as to how they will react to the product. Someone who puts his or her foot down without being able to necessarily justify why.
Google hates intuition, since it's not data driven and is just an opinion. Better to try it, measure it, and prove it. Most of the time, this doesn't burn them. And in fact, it'd be impossible for Google to do what Google does at the scale it does it without this philosophy being burned in deeply to the culture. But this also makes it really, really hard for them to go into social networking with a "big bang" as they tried here, since social networking is largely about people, emotions, egos, and feelings and connecting users to other users in a way that triggers the right responses and network effects. It only partially falls back on data & algorithms to make things work well. (Arguably, Facebook got the former part right first, and bolted on data-obsession later, which is why they are winning this war.) Ie, it's not that great of a situation if you have to machine-learn your way towards realizing that someone's ex-husband doesn't belong on their friend list. You've then burned the bridge and it's too late. Better to have someone with common sense step in and avoid the fire.
So, I don't think this will be the first time we see Google have to backtrack like this. It was the perfect storm for their major achillies heel to be exposed, and I'm afraid there's not much they can do to correct the root problem since it is a cultural viewpoint that would cause the other areas of their business to suffer.