If you don't think the Google business model of giving away as much as possible and subsidizing it through ad revenue is striking fear in the hearts of the tech world, you would be wrong. Even Steve Jobs seems afraid; you may be surprised to learn that Apple has filed a patent which has to do with showing ads in exchange for free entertainment. The patent specifically has Steve Job's name on it and specifies that users must respond to verify they are paying attention. It moreover details increasing levels of difficulty (a smaller and smaller box to click on, etc) of ad verification for the user, meaning you have an incentive to respond in order to show you are paying attention when you get a prompt to do so. Obviously this patent filing describes a user experiance which is very un-Apple like but perhaps the company realizes as I do that showing ads in exchange for entertainment, software and hardware is the natural conclusion of competition from Google.
Google already gives away gobs and gobs of free hardware in the cloud, why is a smartphone or laptop any different than massive amounts of hard disk space and processor time?
If you think this idea is far-fetched, consider that Apple seems to have met with Admob, the mobile advertising leader a few weeks before the company was purchased by Google. Whether it made an offer is unknown but you have to imagine the company realizes, like Microsoft that advertising is playing a crucial role in the way technology is being adopted and Google seems to change the rules of the game on a daily basis.
What is unclear is how any of the players in the market will be able to combat the sheer advertiser ecosystem Google has already developed. This head start does not seem like it can be duplicated but with Steve Jobs, Bill Gates and Steve Ballmer all trying to figure out a way to compete, perhaps we will see more innovation in the ad market in the coming months and years. It makes one wonder if these three may be planning some sort of "we hate Google" ad summit with Rupert Murdoch and other newspaper heads in the near future.