Android was purchased well over a year before the iPhone was unveiled. And remember that the iPhone was seen more as an expensive iPod, not necessarily a challenger for the most prevalent software platform in the world, for a very long time after its release. So it really is a stretch to portray Android's early history in terms of competition with the iPhone.

Microsoft was the threat. Google was expanding into desktop software like Desktop Search, Google Earth, and Picasa by the mid-00's and MS was playing hardball. Google filed a lawsuit against them in 07' over being handicapped in desktop search performance. And Microsoft was already investing billions in web search, so the threat of deeper integration of search into the world's most popular OS was a major long-term threat.