As someone with no dog in this fight, I can tell you that for the overwhelming majority of folks that use a smartphone, the out of box experience is decidedly better with Apple. These folks don't see the heavily sandboxed apps, the closed techosystem, and Apple's complete control of the marketplace as being a limitation. They see it as one less thing to worry about. To them it is a smartphone, and they have much more important concerns in their lives than tweaking it.
It has been this way since day one, and Android is just starting to catch up to that level of user experience. If iTunes is such bad thing, why would Google wish to emulate it with Google Play.
It is not that iPhone users are stupid or sheeplike? they simply have no interest in getting their fingers between the fan blades. And let's face it? Apple invented the device that we all see as the current day smartphone, and it single handedly took them from a struggling company to a tech giant on everyone's lips day in and day out.
With all that said, there are some very disturbing things about their business model as seen by geeks and do it yourselfers. Android excels in this arena, and provides us the ability to do what we do best? truly play with our gadgets. But we are a tiny market. If you can't admit that you might as well not enter the discussion as your reality distortion field is too far out of control for you to be objective.
IMHO, the main thing holding Android back is the customer experience. Google's existence is way too far behind the curtain. Had I purchased my N7 from Google Play, my experience might have been "never again". Instead, I took my first defective unit back to walmart and bought another. In this case, I got one that worked and am very happy with it. Performance and features are outstanding, but in comparison to an Apple product, perceived build quality is not even close.
I am also struggling to purchase a flagship phone from Samsung. I have had numerous flagship products from them over the years, and while performance was excellent, it looked, felt, and lasted like cheap junk. In the hand, an S3 to iPhone comparison is that of a cheap Timex/Casio to a Rolex. Not saying the cheap electronics won't keep time better and have more features, but the look, feel, fit, and finish of an iPhone screams quality (regardless of what is inside). The Apple Store experience is second to none, especially where new users are concerned, while prospective Android users are left to carrier store idiots, WalMart employees, and GameStop managers who couldn't even tell me what their return policy was while I was standing in their store with my wallet out.
Google needs to address the customer experience as it is clearly not just about the feature set or an open operating system (even though there is certainly plenty to be said for them).