Obviously not an exaggeration, it's just a mapreduce query of all that data from every service they own.
I don't have a single google service on my sites but I must be a super-tiny minority.
Not sure how big their index is right now, or how that compares to the entire web, but it is a big number regardless.
Edit: On their announcement of the Grep functionality, Blekko says they are running it against 4 billion pages. This is still only a portion of the web, but that puts it around 1 in 4 pages having Google Analytics installed.
But if you include other services and products like toolbar and adsense, Google can surely see a great deal of what's happening on the Internet.
Real-time dashboards were one of the features people were willing to pay for. Now Google does that for free as well. There's not much I can do about it. I'm sure Chartbeat and such will still find customers, but I'm sure many that may have been convinced to buy will now settle for Google's free option instead.
I don't think MixPanel's worried about it. They're not solving the same problems as Google Analytics and GA will never be a substitute for that kind of service.
Visual Website Optimizer, Optimizely, and UnBounce all run paid A/B testing sites in spite of Google's presence in the market.
> Real-Time does not support profile filters.
This makes real-time pretty useless for intermediate+ users of GA.