But then if they give the OS away for free (they did it with 10). - They gave Windows 10 away to consumers, who don't buy very many Windows PCs anymore. They did not give it away to corporations, where the bulk of Windows revenue comes in.
1. They would sell the hardware - Why? Google doesn't make their Chromebooks. OEMs do.
2. You would HAVE to use 365 as your office suite (so year on year money) - Why? It would be a web browser. You could use Google G Suite. Also, the web based version of 365 costs about 40% less than the local installed version, E1 vs E3.
3. Cortana and search would be tied to Bing - That's why people aren't going to want it... and Bing doesn't bring in anywhere near the revenue of Windows... and people would still likely change the default search to Google as they do with Windows today.
4. Ad supported or paid for versions of many of your programes - Drop in the bucket as compared to the losses.