Someone has probably mentioned this (I'm not reading two pages of comments xP), but Google give their employees a week a month to work on their own project. So products like Gmail, desktop search, Google-Talk and all the others are just projects that Google staff like doing - most of the time however they're working on maintaining the search engine, customer feedback, ect.
Apple was failing before the indroduction of the iPod? Wrong. They were quite profitable actually... The iPod just launched them into the stratosphere.
Yeah.. they figure they are only making 300mil a year on search.. it's just a big waste of time.. The real money is in 3D maps..
I just finished reading a Dummies book titled Google Search and Rescue by Brad Hill. I was impressed with the extent of Google's search ability. One search site that was recommended in the book was Hot Daddy which employs Google, Yahoo, Msn, etc. all in one place.
Google's core business isn't search, it's selling web advertising. Look at it from that perspective, and what they are doing to diversify makes a lot more sense. They are basically going for a land-grab of many of our internet activities.