I don't think it was the release of Apple Maps that caused Google Maps to offer turn-by-turn directions, rather a contractual clause with Apple that prevented them from offering TbT directions. What was Google to do? Offer a separate iOS mapping app, in addition to the stock maps app? Apple would never let that happen. Plus, the SDK prohibited TbT directions using the stock maps. Google's hands were essentially tied.
Actually, it's the other way around. Google knew that their maps were superior to every other comparable service (especially after they introduced vector maps and turn-by-turn), and that it had become a critical service since the iPhone.
Google wanted more out of its relationship with Apple. They didn't just want to let Apple use the maps data in return for money or being the default search option or whatever; they wanted to get information about the device owners. That's how Google makes money - by knowing lots of information about you. That's embodied in the new Google Maps - it actually uses your information and your Google+/Gmail contacts and their information to build a personalised map for you. The POIs you see on Google Maps vary based on (for example) which kinds of restaurants you like or your contacts like.
Google withheld the best of Google Maps unless Apple would give them that information. Apple refused. Google launched their own Maps app, which includes Google+ sign-in and collects all that juicy data from you. Apple doesn't mind about that - they just didn't want it in the default Maps app.
The expectations were set by Apple when they introduced Maps at WWDC 2012. If Apple, using a ton of superlatives, says the product is great, why would fans think anything otherwise?
What Apple debuted was not great by any stretch of the imagination. They could have said "Hey we're giving you a beta level product that needs significant work. But bear with us. A couple of years from now it will be marginally better." That would have been the truth and the expectations for Maps might not have been so high.
But what we got was a ton of hype from Apple, then an apology from Tim when the product didn't live up to the hype. With that being said, I don't understand why you don't understand why people were expecting more than they got.
As I understand it, Apple was kind of forced in to the maps game. It also wasn't really a product which they sold - it was one part of the iOS6 update. Creating accurate maps is a ridiculously hard thing to do. Not only is the world a big place, but it's constantly changing. Businesses pop-up and disappear every single day, roads are built, or change, or closed, somewhere on Earth almost as often.
My experience of mapping on iOS is that is has improved significantly since iOS6. Apple's maps themselves are beautiful, very fast, and pretty accurate. They do have some oddities with regards to POIs, and searching could be much improved, but overall it's very good.
Google Maps have been very good for a long time. Part of that is Google's enormous team which allows them to verify and integrate problem reports quickly. Apple don't have that infrastructure, and it's not economical for them to build it because they don't derive any revenue directly from their maps. Google Maps itself has improved dramatically since the launch of iOS6 - we now have vector maps, turn-by-turn and all the rest of the goodies. It's finally on-par with Android.
Apple didn't launch their own mapping service because they want to get in to maps. They launched it because they wanted iOS devices to have the best possible maps experience, and not be second-fiddle to Android. One way or another, that goal was achieved.
I don't think Apple will continue to build their own maps service for very long. They have bought a lot of companies to integrate, so maybe they'll spin them off as a separate company, but the simple fact is that creating good maps cannot be done by machine and requires a lot of human infrastructure to support. That does not make economic sense unless you are deriving revenue directly from your maps.
Success!
