The android money model is different than on apple. Rovio for example was/is making nearly $1 million a month from advertising on angry birds, loads more than they could make in a month on app sales.
Android fragmentation is an issue for low end phones(even apple suffers this with old iPhone/iPod hardware), the ones that don't have processing power for graphic or computing intensive games. On the phones that most smart phone buyers are gravitating towards (Evo, droid x, droid 2, galaxy s, etc) fragmentation is not an issue. As long as e programmers are programming for execution in the java virtual machines, things are quite groovy. If they try to code for direct execution and interaction with the hardware, then they are effectively inviting fragmentation issues, and bypass one of the great enablers of android, the virtual machine which allows it to be scalable.
Now as far as android going to overtake iOS. Already getting there. It's inevitable. Does not mean by any stretch that it will put apple out of business, because to be frank, apple will always have a niche to fill; there is a lot to be said about consistency of hardware and ui experience. There will always be room for android as well, as it fills other voids, a powerful scalable platform. Each very attractive in it's own rights. You can think of apple IOS products as the corvette, always improvement between each generation of device, perhaps slight styling updates, does more for the same or less cost as the previous generation, but it always has that unmistakeable corvette personality and quality, what one would expect from the corvette. The android lineup is the rest of the chevy lineup, there are the low end entry phones (cobalts) all the way up to phones that perform like the corvette.
And one last parting thought...... Google doesn't have to play catch up. They are right where they want to be. They wanted to open a new revenue stream on a new medium. Mission accomplished. They make money through the android market, and billions through ad mob. They developed the platform, and it's very capable no matter what any fanboy says. It's the handset manufacturers that take all the risk in developing hardware and selling phones. Most manufacturers are sooooooo focused on topping apple, that they more often than not lose focus on what brings customers to them in the first place, beautiful working hardware. They build phones and stop supporting them or are slow to support them (samsung, and all of their android phone line), they rush products as a calculated risk to beat apple (motorola, xoom). Or you have manufacturers that put crap products out the door in order to cash in on the fad (many Chinese companies cheap android tablets). this is what brings negative attention to android.
Quite honestly I believe that only one company, possibly others, has it right when it come to android and that's Htc. They come out with beautiful form factors, their phones in general work, and they are consistent with their user experience (sense). They don't rush their products, and they support all of their phones! They don't drop support just because the next model year is out. I am very excited with what Htc is doing with android, and will not consider leaving my apple tablets behind unless htc has something spectacular to show.