1) That Google neither manufactures or sells the hardware, nor charges for the operating system, means their revenue source is highly dependent on mobile advertisements displayed on these devices – not the initial sale price. The strategy is to tie more users into the Google ecosystem (GMail, Google Search, Maps and so on), as a way to place more advertising, on phones and other devices.
2) Apple makes around $576 per device (http://tech.fortune.cnn.com/2012/04/02/asymco-google-makes-only-1-70-a-year-per-android-device/), presumably the majority of these users will re-buy another device in the next two years. There are various design elements of these devices which all lead towards the ultimate goal of recurring hardware purchases. This is an entirely different business model.
3) Irrelevant of hardware, the general trend is, the more people use the internet (no matter where, on what or when), the more money Google makes. The main benefit of spreading Android as far and wide as possible is not to reduce market share of competing devices, but to get more people using Google services as seamlessly as possible – this is the path to greatest revenue. Choices about all other elements end up servicing this goal.