Maybe you can help me understand this analogy a little better. You say that it's similar to when Microsoft decided to bundle IE into Windows, but the comparison isn't totally obvious to me at first blush.
Microsoft went to great (and often illegal?) lengths to prevent customers from considering or being able to make use of alternatives. Consumers had a great deal of lock in -- a user of a Windows computer often had software that would only be compatible with a new computer that also ran Windows, for instance. And Microsoft was able to use that leverage to acquire and keep users of its browser software.
Google doesn't seem to be following that pattern, as far as I can see. Users can (and do) make use of Google services from non-Google platforms. Google makes its products available to people using browsers other than Chrome, phones other than Android, etc. Performing a Google search requires no account.
I use Google for a lot of services, and I certainly don't want a lesser quality site at the top of my search results. I haven't seen that, either. I _have_ seen Google augment its already stellar services with new features that enhance my experience, and I ignore those things that haven't. If I ever find myself unable to ignore or disable things, I'll probably switch to another search engine. Which I'm free to do, since my use of the internet isn't controlled by Google!
You make some assertions that I'm just not seeing the evidence for, but I'd like to hear more about them. It seems uncontroversial that users don't want lesser quality search results. Where is the evidence that they are seeing them? And if they are, why aren't they switching to a different search engine? Why should Google have to separate their "core" search business from their other ventures right at a time when the expanded product (things like Google Now) is proving just how revolutionary a next-generation, personalized, multi-source search agent can be?