How were either of those likely to be seen as impossible or illegal? Both commercial software and search engines were existing fields — heck, search was actually considered a mature field and the existing search engines had started branching out in other directions.
Bill Gates is actually famous for his "Open Letter to Hobbyists", making the case for commercial software in the 1970's. Up until that time, most software was bundled with hardware (a throw-away reference to this is in http://en.wikipedia.org/wiki/Software#History).
At the time that Google began, it was assumed - and not just by me - that Altavista was the best we could do automatically, and that Yahoo! and other human catalogued sites were the only way that we could easily find websites that matched what we needed. Both were rapidly changing into portals to create a useful business model. The first time I used Google (a few months into the public beta I think) I was totally totally blown away by the fact that the obscure page I needed came first or second in the rankings. The "I feel lucky" button was a startling statement of self-belief by Google.
So, yes, in both cases the broader market didn't believe that real innovation in product or business model was possible.
Ref: Bill Gates/Microsoft and commercial software.
Most operating systems were indeed bundled with hardware. For one thing, this eventually ran afoul of anti-trust in some areas. But there was certainly commercial software on large systems (although, to be sure, because software, hardware, and service all came from the same vendor much of the time, a lot of things ended up getting effectively subsidized by the high-margin hardware.)
