Most people are more than happy to accept advertising as a cost, especially if the ads don't upset the application experience or function. Google is very good at this. Can you imagine that after 10 years, any other company would present ads that look like Google Ads do now?
I don't know if Google's +1 initiative will succeed, but it shows that they are innovating to keep ads relevant and useful. As location is going to be a key element of search, Google has to get in that game. Bing and Yahoo are not serious competitors. They aren't interested in the soul of search.
EDIT: I don't think Kyle ever followed up on what he thought Apple's strategy should be. But, he did post this about strategy in general: http://www.tightwind.net/2011/03/no-strategy-no-future/
I don't know what experience Kyle has, but the post is interesting, and it goes along well with this post about Google.