While I'm glad to see any competition against Google, it's uncomfortable to see Apple have Google-envy. It could make Apple take their eye off of their core products.
In many ways this is what is and has been happening to Microsoft. They have massive Google-envy. Vista and Office 2007 were not exactly well received and they were developed during the peak of Microsoft's Google-envy. They have mended their ways a bit though since then.
I hope Apple doesn't get too distracted by their battle with the evil empire (Google).
Funny, you say Google is the evil empire but I was commenting not long ago that Steve is starting to look kind of like the emperor =P.
More seriously... I agree with you about Apple... I think they are kind of barking up the wrong tree here if this is indeed true. There's nothing wrong with entering new business arenas, but usually changing your whole business/revenue MODEL is not the best plan. Apple's model is not ads, it is selling devices and to a lesser extent, selling software. Their whole focus, elegant hardware with tightly integrated software, simply doesn't transfer to an "ad model."
Google's revenue/business model has always been advertising. They don't build hardware at all (I consider the Nexus One an HTC device). They make products which are web based (Gmail, Maps, etc) or are designed to get people ON the web (Chrome, Android), use these products as a method of collecting non-personal information then use the products and the resulting information to serve ads.
These two models could not be more different. Google entered the mobile market only because they feel mobile web is where future web growth - and thus future web advertising growth - is going to be. I'm speculating, but they likely felt BlackBerry wasn't tapping many consumers, and the iPhone was limited because it is only on AT&T and is a locked down device, which some consumers do not prefer. Thus they created software (or, bought and tweaked software) for mobile devices and released it at low cost (or free?) to partners who have made handsets with it. Again, the Google model is to get people online. To GIVE AWAY the product, as it is a means to their commercial end - serving more ads.
There is nothing inherently wrong with either business model, but they are vastly different. If Google started trying to package up Picasa in a slick retail package and sell it, I'd say they were barking up the wrong tree. Picasa is great but that's not their model. I think Apple is making the same mistake here. This whole thing smacks of "lets go after Google" rather than "this is something we want to get into." I think if this occurs, we may well see a rare "Apple Failure" here.