Google has ALWAYS been an AI company. From the beginning, pagerank indexed information, made meaning out of this information, and could predict the most relevant url better than anything else in the market. Search was simply the first application.

AI is not a market - AI is a tool. Google is NOT poor at product development. However, it does seem that they have failed to build some products around AI tools (like Google Wave).

Sure Google (and others) will continue to make products by applying AI to market problems.. but they've been doing this their entire existence.