It's an old dog vs. new dog argument. Microsoft still sees the industry as a physical, software-driven business (which it currently is).
However, Google is pushing everything into the cloud. Things become more affordable and accessible this way and if Microsoft isn't worried, they should be.
IE is one of, if not the worst browser on the market. Chrome is one of the best.
Cloud-based music? Amazon kicked things off and Google is going to make it better. You better believe this was a space Microsoft was interested in with Zune before Apple and iTunes molested them into submission. Apple will win that fight over Google once they get involved, though.
In the next 5-10 years, software and web apps will be the exact same thing. What happens to Microsoft then when Google has been building towards it this entire time?