Yes, Google is an advertising company, 98% of its revenue is from advertising. But Microsoft remains its primary competitor in the search market. Tablets are already slated to outsell desktop PCs next year, smartphone sales are soaring, clearly the future of search is in the mobile market. Microsoft is using its mobile devices to promote Bing, going as far as integrating it deeply into the WP OS. Google knows legitimizing the OS with app development can help grow Microsoft's space within the category and a 3rd party proprietary app is at a distinct disadvantage against the integrated, default software (which is why desktop IE, seen for years as a terrible product is still a relative close 2nd to chrome). Speaking of which, they're also battling on the browser front (which has SERP delivery implications) where Google and IE's market share is 37/26% respectively.
I downloaded a Google search app for WP8 on the first day ... I've been using Bing ever since, despite being a lifetime Google user. Why? Because its built-in and convenient. I haven't even looked for browser alternatives, despite its flaws I look at IE as my only/best option on this phone.
Getting Microsoft out of the mobile space entirely is obviously more fiscally important than the short term ad revenue generated through a 3rd party app on the WP platform that will likely only act as a bridge to the native software.
Just my two cents, seems like a smart move by Google .. and still some truth to their argument but lets not be idiots, they can cover the cost of app development in a very short period of time with search revenues. This was at least as much a psychological play. The moment Google feels their app development has no philosophical impact on Microsofts market share, they'll jump right in and try to carve out their piece of the pie.
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