Distro or just net service?

So, here is a question. When you use Google's search engine, are you using a software distribution? If the answer is no, then we have an interesting problem on our hands: if software can be made available in this fashion over the network, then what need is there for those developers to be in any compliance with a license's requirements vis-a-vis distribution? So, for instance, if I were to take code licensed under GPL, make modifications, and then make it available much as Google does, (as a network service), but keep my modifications private, am I in violation of the GPL? It seems not. But then as has been pointed out by Tim O'Reilly, there are "pockets of proprietary opportunity" all over the place. How should free software licenses handle something like this - should the definition of distribution be changed? We're hoping that GPL V3 will address this issue but in the meantime we'll speculate - here on these pages - about how this could be handled.