I would actually be very surprised if google enters the discount domain game. I would think that they would take a more profitable approach seeing how they already have the Google brand (which is has a "high-end" perceived value).
Besides, it's not like $5-7 domain prices are not exactly what I call "high-prices". Google will not be your discount domain saviour, they have too much dignity, I think, to play that game. And if they do, they will have restrictions just like Yahoo (IMO, not being able to transfer a domain to a reg of my choice diminishes the value of an already technically worthless domain. It's almost like you are renting, not owning) or they will have to get into other services to make upsells that compensate for the loss taken on the sale of a $4.00 domain bought for $6 wholesale and where the cost of aquisition of a new customer is ASTRONOMICAL.
Did you ever see PPC prices for these types of keywords pertianing to the domain and hosting bsuinesses? Unbelieveable. TO be in the domain bussiness, you can't just sell cheap domains and expect to be in business next moneth. Domains reg alone is a sure loser.
In my ecperience, a realistic CTR for a PPC campaign is around 2% for the average advertiser with the average ad and an average product. Then the conversion rate is is yet another 2% (if you're average, if you are below average, you are screwed even more). Meaning, out of 100 impressions, you get 2 clicks (let's say they are $5.00 per click which is lower than most are paying for #1 postitions). THen out of those 2, no conversion at all - actually it is 0.04 customers converted. You just spent $10.00 and no sale. at these percentages, one would need to have 2500 impressions to get one sale (conversion/aquisition). It took $250.00 to get one sale and that sale will most likely be to a domaineer who has no intention of buying any other service. Just a doamin.
These are all conservative figures but you can begin to see just how hard and competitive the market is. It's all about backend sales and upsells and customer retention, not domain registrations.
Anyway, this is very much in line with this thread, I think (not to hijack or anything)...
http://namepros.com/showthread.php?t=67790