In an iterated game, punishments must have a deterrent effect. They might seem disproportional, but Google's goal is not "do what's best for the world in this one instance, ignoring the long-term effects". Google's goal is "make sure nobody will try to cheat Google's algorithms, now or in the future." This is how you build the best search engine in the long run.
It would be the same if Google didn't dominate search, though they'd have to be more careful about optimally calibrating the punishment.
(N.B. This argument remains true even if other people are gaming Google right now.)
Not really, because they're using this kind of punishment to make an example of them in order to prevent future SEO abuse by others. It's probably for the better.
So I don't get why Google essentially fucks up with their customers.
You have the company name, not necessarily the website. It could be .com, .net and probably reasonably well a few other ones.
This is what I said when I met with Milun Tesovic from Metrolyrics, and what was more shocking is that they were licensing lyrics and paying royalties for it and that they used jQuery to block people from copying and pasting lyrics. You could be sued for copying pasting "copyrighted" text and that every other lyrics site were using "pirated" text.
You telling me consumers can't copy paste the words to "bitches aint shit but hoes and tricks " (Dr. Dre 1992, Chronic) because they are paying royalties for it out of their own pocket?
Needless to say, the traffic between azlyrics and metrolyrics reflects this. Former has been trending up for the past few years, while metrolyrics have stagnated and is less frequented than azlyrics.