You're right that Linux has dropped the ball. They dropped it by competing with themselves instead of with MS. This is, financially, like fishing from the pond instead of the ocean.

There is an attitude amongst Linux users that everyone who uses anything other than Linux is an idiot (just look at the posts here to see that in action) and so should be ignored and insulted by the "real" computer users. The truth is that people use what they are used to and aren't really looking for huge changes (small changes to keep things interesting, yes, but not big ones). Some people will blast MS for producing such a different OS interface in Win8, then in the same breath say that people need to come to the totally different interface of Linux. How stupid is that??

Joe Averageuser doesn't care that Linux is more secure and stable than Windows or OSX. All they care about is that they can use their computers to do what they want in as easy a way possible. Having to do anything from a command line confuses most folks. Yes, KB shortcuts are faster, but most people won't even bother to learn them (even though they are printed right beside the link in the drop-down menu) because it's easier not to have to think about it. (Yes, people really are that lazy!)

Linux distributors need to learn to design interfaces and configurations for Joe Averageuser not Joe Superuser. (MSI packages anyone??) There can still be all the cool Linux-y stuff in the background that Joe Superuser can get to and play with, but the only way to get Joe Averageuser's money is to make it as easy for HIM to use as possible.