The reason Google hasn't built a walled garden around the internet because they simply don't yet have the power to do that.
You talk as if it was something they could easily have done but have chosen not to. I disagree. They just aren't in a position to do it.
It makes no sense at all to say that innovation on the web has vanished because of the Appstore. We are in in a boom time for internet startups, and we have healthy browser competition leading to web standards advancing much faster than at any time in the past.
There is room for both the open web, and for more controlled environments like the app store or Facebook to coexist and compete with one another. Each offers different tradeoffs.
The existence of different kinds of environment is a good thing. It provides a variety of different economic opportunities, and choices for consumers.
Google would naturally like to have more influence and control, but the reality is that they exist in a competitive environment.
