It would and to certain extent it does especially with startups etc. Where they dropped the ball is not being serious about the enterprise support. There are other reasons as well like attaching Google's name to the product there by making it non-serious (as in free/personal vs enterprisey/serious) due to Gmail being associated with personal email. If they are serious they should have gone with a separate brand with competent support.
Despite all the above reasons, the main reason for the current zero competition is because for all enterprises,using azure AD is a natural progression from their much abused on-prem AD which has been linked as the primary mechanism for user auth across all kinds of products (MS and non MS). To be honest, MS doesn't have to do anything now. Just sit back and collect the money (and once in a while acquire things that have potential to become enterprisey like the GitHub).
Where I work, Office is being used less & less in favor of Google docs, so I'm not sure what the future holds. MS bundling OS/Office licenses more agressively I'm guessing will be one factor.
As a side note, this increased use of Docs is unfortunately out of sync with security policy where I work. Certain types of data are only allowed to be shared through an encrypted portal that auto-deletes the file... Unless you put that data in a Google Sheet and hit the "share" button.
Google bounces incoming mail on mailboxes that are locked for "suspicious" activity or logins. I've had it happen a few times as a result of a false positive and it's horrible. It's obvious no one at Google ever sits down and asks "will this be good for our users?"
I have a free 50 user legacy account with Google Workspace and I only use it for personal stuff. I don't trust it for business.
They didn't need anything else. Till there is no competition for user management and corporate email, they will be in business.