Google has a major problem with their strategy...most of their products suck. Aside from Google Maps, Android, and Search they produce garbage. GMail isn't an effective alternative to Outlook and Exchange, Google Docs isn't an effective alternative to Office (or iWork for that matter), Google Drive isn't a good alternative to Dropbox, Sugarsync or even Skydrive.
Google's business model is better if all things are equal. But all things aren't equal. That's where Apple has been able to provide an advantage and Microsoft can as well. Until they bring their product quality up you're just not going to see a true competitor to Microsoft's dominance.
On the question of whether Microsoft will ditch the hardware partners and become an Apple? No, they won't and they shouldn't for two important reasons. People who don't get business believe it's just a question of being both the hardware and software producer to be like Apple. The reality is it's not nearly so simple RIM, Nokia, Song, etc. have all done this and FAILED. Apple's success isn't just about being an integrated company, it's about a particular organizational structure and operational philosophy, as well as significant assets that allow them to do so. Microsoft can't reasonably replicate that, at least not anytime soon and shouldn't try. There's another more important reason though. Microsoft's partners are going to produce hardware with or without Microsoft so if Microsoft abandons them where will they go? They either create another software platform (more competition for Microsoft) or they go to Google and strengthen the Google platform (bad for Microsoft). So it's essential to their survival that they keep partnering with others. Eventually, an open system will win out, it just takes a lot of iteration to get there.
Is selling licenses an obsolete business model? Not so long as there is a lot more value for the license (this is particularly the case for business users), right now in Android there isn't much to be argued in any platform over Android but in other spaces there are still huge advantages others offer so it still makes sense. However, in reality as Ballmer has correctly stated, Microsoft needs to shift to being a devices and services company, which they'll do, probably successfully, not because they've been so adept at it, it's been pretty messy actually, but because the competition at moving in that direction has been so bad!
Biting the hand that feeds IT
