Google is going to just sit idly?
Google already knows how to make great search engine. It is just 'choosing' not to, so it can make more money from advertisers.
If it didn't have to pay $20B/year to Apple, they can re-deploy all that capital however they see fit to maintain its dominance.
Probably, that is what most companies the size of Google do.
I would guess they are trying to do both. I'm assuming the search team is 1000s of people with many of them trying to improve it.
I think part of the reason search has gotten bad (once you get past the ads) is the SEO spammers. I use DuckDuckGo and it has pretty much the same problem of shitty websites with copied content clogging up the search engine. The more zeroed in I am on some of my searches the more duplicate websites with fucked urls comes into play.