And where do they go from there ? Sure, they might get a good quarter or two, but the whole business strategy falls flat on it’s face the very first moment someone puts out something with a decent build or at a significantly cheaper price. Strategies that depend on others doing it wrong are inherently risky.

I strongly disagree. Google supports their services, not your hardware. That’s why (not) getting FroYo or another Android build is such a fuss. The only handset Google supports is the Nexus One. Other than that, you are at the mercy of your vendor/carrier, or, if you’re lucky enough to have a popular handset with a bootloader that is not locked down, to crafty hackers.