Google wants to be more than a consumer company. They want to get into businesses as well, the space where Microsoft has basically been printing money for itself for years. To that end, Google secured a 7.25 million dollar contract with the city of Los Angeles to replace the city's aging email system with a new cloud based one.
Problem is, they can't seem to bring it into compliance with what the city is demanding in terms of securing information and have just missed a key deadline in nailing down those security issues. This could be disastrous to Google's efforts since many organizations unhappy with their current systems are watching this case to see if Google can provide a viable alternative.