Lively is and never will be a significant competitor to the VW business as we know it now. It's an early prototype of a tiny part of the vision they have; the dipping of the proverbial toe in the water. What Lively and the other Google technologies will grow into will again be a different target market.
More importantly, a VW like that might be a hit for a year or two before people lose interest or something better comes along. But that sort of faddy thinking doesn't interest Google. They're entering the VW sector as groundwork for a service that people will find necessary in 5-10 years time.
My guess is that it'll be Maps, Earth, Street View, Android, Lively, AdWords and many more services all rolled into one big Augmented Reality (in this view it also makes sense for them to take over Wikipedia and Flickr - which they've recently incorporated into Maps).