For a company with 50+ employees, $2500 per year is not a major expense, relative to rent and payroll. Still vastly cheaper than MS Office.
Sure, but perhaps companies in the middle, with less than 50 employees, might be willing to spend some money, but not $50 a year per employee. Say, a 10 employee company - that's 500$ a year, which isn't huge, but not peanuts either. If Google could get 200$ out of them, and still make a profit, it seems like a win for everyone. No idea what their actual costs are, but they can't be that high if the advertising is anywhere close to covering them.
Yikes, I thought it was 0-50 for free and any users past that were $50. So 51 users would be $50/yr. I guess you really have to justify that 51st employee :).
Well, companies can upgrade well before they hit 50 users. You get extra space, no ads and premium support.