I'd argue that search and Ajax did more harm and drove the first wedge. Search gave Google a business model and revenue stream. Ajax enabled Web apps, beginning with Gmail. That enabled platform independence and a split from the Office monopoly, particularly Outlook/Exchange and Active Directory.
Mobile was another keg of coffin nails, particularly in consumer space showing that ease of use and zero configuration were possible.
I agree on your assessment of Google's advertising reliance being an Achilles geek,and that the company risks marketshare loss through heavy-handed G+ promotion and privacy concerns.
Microsoft essentially invented AJAX. In the late 90s they had some HTML remote update thingy via a Java applet, I believe. Then they introduced XMLHttpRequest. Developing for IE around that timeframe wasn't bad. They had excellent documentation, and added (proprietary, sure) extensions that let you do all sorts of neat stuff.
Yes. Microsoft invented XMLHTTP so they could build a killer web client for Exchange Email. Remember when you first saw that? It was amazing. IE 5 was hands down a more capable browser than any other when it was current. It was nonstandard, but it was very productive. You could do AJAX, XML to HTML transforms in the browser with XSLT, xpath navigation of XML documents, etc. JSON wasn't popular then but support for XML was excellent.
They didn't have the vision to build consumer oriented "cloud" software like Google did, but they were positioned to do it before anyone else was.
MS ran off the hell off of Xenix internally. Mail, calendaring, etc. I remember when NT was going to be the best Unix out there... And then Win32 happened and coolaid got sloshed around. The NT Kernel could have been an amazing Unix.