I think convenience is the keyword. Users (not us HN crowd, the rest of the world) don't want to struggle with installing software, most of them don't know the difference between Internet, Browser, or "app".
They just open up "internet" and work on docs, and for 99% of the cases Google Docs works fine despite running in a browser that is much less efficient than a native "app". For most cases it's more than enough for the regular user who is used to "computers being slow" anyway.
I also love to use and prefer native apps. But, in my case, I had to offer Google Docs to my dad. Because he wanted to transfer his doc file to his work computer to continue to work on it when he is at the office. So, I thought a web app might be good for him.
Sure it's a perfectly normal thing. I'm talking about Google side of things: they're probably not caring about performance when dealing with 30MB large docs as it's not what people use in their docs anyway.
They just open up "internet" and work on docs, and for 99% of the cases Google Docs works fine despite running in a browser that is much less efficient than a native "app". For most cases it's more than enough for the regular user who is used to "computers being slow" anyway.