There is a huge economy of scale working in Google's favor: deduplication. The more users they can de-dupe across, the cheaper their raw storage becomes. To compete, perhaps smaller backup services could agree "reinsurance" contracts with each other, exchanging lists of file hashes...
Good point. As storage gets cheaper, more people will be induced to store mass media in the cloud, which tends to be a lot more duplicated than personal media like photographs and videos. And that's going to be a big win for the provider with the best ability to dedupe.
