Correct me if I'm wrong but the iPhone actually did start that way, right? Apple only added an app store after the fact, because web apps weren't fast and functional enough, and the app store was a huge success with consumers.
I imagine in this alternate universe where web apps take off because Apple adds support for nonstandard functionality to Safari to accommodate user needs, people would be upset with them as well.
And at least for watching Netflix, reading news, shopping, and playing games, well, you can do that in a phone web browser now.