Google is now offering a small virtual hard drive in the cloud so you can access all sorts of files anywhere — the latest salvo in an arms race to become the dominant player in cloud services.

As with many Google initiatives, this one may be deceptively modest: When it is completely rolled out, Google Docs will accept uploads of any kind of file — not just text and spreadsheets. That move heightens their competition with Microsoft, and takes on Apple and a number of small startups in the business of creating backup and storage space on remote servers.

This business is suddenly becoming viable with the ubiquity of broadband connectivity (which makes things almost as accessible as they’d be on your hard drive) and the popularity of netbooks (which are usually light on internal storage). Cloud computing also makes it possible never to lose data when you drop your beloved laptop, or when you don’t have it with you.

It’s already a crowded field, with all of the usual suspects: Microsoft’s cloud-based platform, Azure, is already available in a fully a la carte pricing scheme geared toward their core enterprise customers, and it offers a 25-GB online Skydrive for home users through its Microsoft Live services. Apple’s Mobile Me (once known as iDisk) has a 20-GB floor for $100 a year and a family plan in keeping with their mainly consumer focus.

For now, Google is portraying the initiative less dramatically, as a USB key rather than as a hard-drive replacement.

Instead of e-mailing files to yourself, which is particularly difficult with large files, you can upload to Google Docs any file up to 250 MB…. This makes it easy to back up more of your key files online, from large graphics and raw photos to unedited home videos taken on your smartphone. You might even be able to replace the USB drive you reserved for those files that are too big to send over e-mail.

While text documents and spreadsheets don’t count toward the total, the offering is actually quite underwhelming in terms of capacity: 1 GB, with extra storage available for $0.25 per GB/year. By contrast, Gmail now offers more than 7 GB of storage for e-mails and attachments, while Google’s Picasa lets you store 10 GB of photos.

But perhaps this is just a beginning of the famed Google Drive, a full-on hard drive in the sky. It’s one more step to make the free Google Docs into a compelling alternative to Microsoft Word — another attempt to break the hold Microsoft has on the desktop to transition users to using the internet even more (because that’s where Google makes its money).

If this is the precursor to something larger — say a giant Google drive that combines Gmail and Picassa, etc., Google ought to get themselves and their checkbook over to Dropbox, the little startup that offers a fabulous service that turns a folder on your PC or Mac  into a shared storage drive. And if I were at Yahoo or Microsoft, I’d hope to get to Dropbox ahead of Google.