Google has a funny corporate culture.
It's based on trial-and-error, much like open source is based on trial-and-error. Some things work, some things don't.
Microsoft has its WWE strategy, hiring wide-bandwidth brains and then setting them on one another in a cage. Yahoo has its Howard Stern strategy, where it seeks to be King of All Media. The normal strategy is Apple's Great Man strategy. GE is on its 5th generation (or so) of great men (a great men record we hope will stand for a long time).
Google tries things, some from inside, some from outside. Sometimes, as in Keyhole, it works, and the President personally endorses The Google, staring at his Crawford ranch from his Washington exile. (I've looked at my home too, and so have you.) Sometimes, as with Blogger, it sorta works (and sorta doesn't). Sometimes, as with Froogle and Google News, it gets trampled by other priorities and just sits there, draining cash (but not too much).
Sometimes it works, sometimes it doesn't. But (here's the thing) Google keeps trying. Its strategy will change only when financial circumstances force it to change. I don't want to be at the Googleplex on that day.