Hardly a good advert for the franchise regime, is it? The disadvantages have taken longer to surface than with rail TOCs perhaps, partly because, as you say, most passengers couldn't give a fig about who runs the buses they use. I think in time all significant bus operation in London will be brought back 'in house' as it were, as has happened in other countries. So long as you don't get politicians trying to control day-to-day operations I can see significant advantages in this, though I accept there might be some downsides.
More passengers may not help the operators, but if they don't operate a high proportion of scheduled mileage or don't keep gaps between buses small, then there are financial implications. That is enough incentive to run as good service as possible.
Which countries have brought back operations in house?