At the Google I/O developer conference today, Google demonstrated a new product called Wave that essentially combines e-mail, instant messaging, wikis, discussion boards, and collaborative documents into one Web service. Created by the developers of Google Maps, Wave works within a Web page, using HTML 5 capabilities supported by browsers like Chrome and Firefox. Lars and Jens Rasmussen and product manager Stephanie Hannon showed off the sprawling capabilities of the product to enthusiastic developers during the keynote presentation.

Still very much a work in progress, Wave will launch publicly later this year. But the features showed off during the demo were impressive.

Wave can be used as an e-mail service, and it even looks something like Gmail, which organizes e-mails based on the conversation thread, but it can also turn into an instant-messaging service on the fly, depending on who in the thread is online. Dragging and dropping photos into a message shares them almost instantly. Wave can also be integrated into blogs and connect to services like Twitter; comments posted by you and others can show up on your Wave homepage, giving the product the potential to collate all of your disparate conversations around the Web.

Additionally, Wave can be used to create, share, and edit documents within a message, just as one would write an e-mail. These updates can be viewed by collaborators in real time, and a feature called playback allows people to view each change one at a time, although the default mode is set to see the document after the most recent edit.

Importantly, Google released an application programming interface for developers today so that they can build gadgets that plug into Wave, similar to the way that add-ons work in Web browsers. The examples of gadgets included collaborative sudoku and chess games, but it’s easy to imagine all the types of applications found on Facebook translating to the Wave environment. Another demonstrated gadget was a semantic spell checker that analyzed the phrase “open a can of been soup” and suggested “bean” instead of “been.” And Lars Rasmussen showed off a real-time translator that converted his English instant messages into French, and his friend’s French messages into English.

It remains to be seen, however, how most Internet users will perceive the product. If they see it as yet another way to have a real-time interactive conversation, à la Twitter, they might reject it. A balance will need to be struck between speed and constant interruptions, admits Rasmussen.

Another potential challenge that Wave will need to overcome is the fact that it is truly a sprawling collection of features, capable of doing so much. This will make it difficult to package as a product. In the case of Wave, it seems as though Google is betting on its developers to build simple applications that can help consumers get the idea.