I think both approaches are necessary, and complement each other well. An incremental approach will be the best way to clear out the psychological obstacles to self-driving cars, people need to gradually get used to the idea or else it will just be met with fear. and google's approach is already proving to be an effective tool to clear out regulatory obstacles and get the public excited.

And for a company like Tesla, who will sell their own cars, an incremental approach can be self-funding. Google has a ton of money to dump into research and is unlikely to bring a car to market themselves, so building a finished product will make it easier to find customers to license individual components of their tech to.