Back in 2000, Google launched it's second most important service: Google Directory. It was released to compete with Yahoo Directory, the most popular Web directory at that time.
As by that time Google wasn't in the position to obtain a massive number of data in a short term, they initially signed up a partnership to use data from Netscape's Open Directory Project as well as DMOZ. But they also added an innovative feature: automatically ranking results.
Until there were an editorial control on the listed sites, Google Directories proved to be useful.
However, most directories were literally obeying to their name, so they were ordering results alphabetically from A to Z. And as we learnt along the time, not all the web sites offers the same results in term of quality (so they weren't), therefore, what was the point to have a crappy web site starting with the letter A ranking first?
Google solved the problem, mixing up static entries frrom their partners with their algo.
Now that the Web has a lot more than a trillion pages, it's impossible to maintain a directory, so search engines are the only scalable solution.
So Google once again solved the problem: they shut down their service.
Seriously speaking, who do really care about this? I've not been entering in google directory since 2006, and if it wasn't for some blog posts, I wouldn't probably been able to notice the difference.
Beside any commercial and financial decision, I strongly believe google did the most opportune choice, assuming they re-routed the engineers behind the directory into some other department (possibly not Google Labs, as it has been shutted down too).