What's particularly telling here is not that they were "scared" - they weren't. They thought that this was a simple failure of marketing. It never occurred to them that Apple might have introduced something that might actually have some advantages over their next generation system. It was inconceivable to them.
That is not a failure of marketing - it's a failure to understand the market and your competition. It is a failure of management - and a failure at the highest levels of the most profitable software company in the world.