So its massive technical inferiority to H.264 (e.g. poor encode/decode performance, worse image quality at equal bitrates), lack of hardware support (= abysmal battery life for mobile devices) and poor production tools should all be ignored just because it's free?
But consumers do. Worse quality video with crappy battery life. No thanks.
Massive technical inferiority? Do you know anything about video encoding? Read some of the comparisons between the two formats, there are pros and cons in both and the fact that webm may be patent free (and if it's not it will likely be hard to force licenses for anyway) is a massive benefit.
Flash is a "winner" here is as much as this move by Google makes it exceptionally unlikely that HTML5 will kill flash. But your logic that it will therefore harm Apple is incorrect.
IE9 is going to support H.264 HTML5. All iOS devices support H.264 HTML5. Flash video supports H.264. As a content provider this means you can encode your video once (as H.264) and serve it up with two different wrappers: IE and iOS get the video in an HTML5 wrapper, and everything else gets the video in a Flash wrapper. Where is the incentive for the content provider to go WebM? Choose H.264 and it's easy to serve your content to everyone, choose WebM and you can't serve your content to iOS devices. It's a no-brainer.
The only content supplier that really matters here is youtube due to its monopoly on web video. It makes no difference if browsers support it or not.