Perhaps their product R&D has slowed down a bit ("more wood behind fewer arrows"), but their academic research is still strong. Their collaborations with Hinton, Thrun, and Ng are just the most obvious and recent examples.
On the other hand, Microsoft has for a long time made a serious investment in basic research, both on the programming language side and on algorithms, but that hasn't stopped them from misfiring in multiple product categories.
Not arguing with Google's strategy, but has anyone ever really thought about the "more wood, fewer arrows" analogy?
If you look at the battles that were won by archery (Crecy, Agincourt, Mongol domination of Chinese, Moslem & European armies) it was the volume of arrows that won them, not the weight of the arrows.
There were some battles where arrow weight was mildly important (eg, at Agincourt where the French armour had advanced enough since Crecy that it gave some reasonable protection against arrows). But even in these battles the archers used heavier heads on the arrows (which were also shaped differently) - not more wood.
Anyway - totally off topic, and like I said I think Google's strategy is good. But their analogy breaks down when we actually look at history.
To continue discussing the analogy, there are some things that threw lots of wood behind very few arrows to great effect. They just weren't fired by archers anymore: http://en.wikipedia.org/wiki/Ballista
Microsoft Research is still one of the most influential and visible industry research labs in Computer Science, publishing more great papers than most top universities.
However, this work rarely seems to make it into their consumer products. I suspect it's mostly an issue of the organisational structure of Microsoft, rather than the type of research, which makes it difficult to jump the gap from research to products.
On the other hand, Microsoft has for a long time made a serious investment in basic research, both on the programming language side and on algorithms, but that hasn't stopped them from misfiring in multiple product categories.