Everybody has access to (nearly) all source code. The single repository means that you can dig in to find & fix problems in any Google product, regardless of your position in the org chart. And if someone invents a feature that you want to use, you can just grab it, like the appearance of Wonder Wheel on YouTube.
Google has a strong ethos of "If it's broke, fix it", regardless of the org chart or assigned responsibilities. It's usually mentioned to you as a Noogler, but what really reinforces it is the reaction you get when you actually fix something broken. In a lot of companies, there'd be a bunch of "Who is this guy and why is he mucking with our code?" recriminations (if you can even get access to the code). In Google there's a "thanks for doing this" and sometimes a peer bonus.
Code reviews help a lot, somewhat paradoxically. When all code is reviewed, you lose the fear that you'll break somebody else's code with your fix. You make your fix, send it off, and if there're problems they'll have you fix them in the review. If it conflicts with the overall goals of the project, they'll just deny your patch.
In a system without code reviews, chances are that you'll break something by contributing to a project that you don't really know about. And once enough people have broken things, the company institutes code ownership policies that mean you can't fix things in other products.
There's also 20% time, as someone else mentioned. And the combination of free meals and pretty fluid inter-project mobility. It's likely that your teammates have worked on other projects before, with people who are now in wildly different areas of the company.
Finally, there's just the difference in growth rates between the two companies. Everybody at Google has more work than they can reasonably do. If somebody else does the work, it just means you can go home early this week, and there'll be plenty of other things to accomplish next week. If you spend 3 months writing a dialog box in Windows, though, and somebody makes that feature obsolete...well, that rather sucks.
So you can draw an analogy here ... Microsoft held to its cash-cows (Windows, Office) for too long, although they are showing incremental success in other areas ... like the XBox. Google may get to that point where AdSense will start making them irrelevant, and then they'll be in the same situation.
All big companies face this. Even Apple ... if you'll look closer, they are far too focused on their iTunes Store. And when a cash-cow starts to become irrelevant, although it's still profitable, it's a tough decision to let go.
But I don't see how owning such a powerful distribution channel is something they should let go of. Even now it's looking like they could become a major player in not just music distribution but other media (books, video) distribution as well.
This is where I disagree ... they are doing the same mistake Microsoft did. Right now to develop apps for your iPhone, you need a commercial SDK for which you pay $99 and that only works on Mac OS X.
Do you know how much of a PITA this is? I am on an NDA and I can't give details about what I'm doing right now, but believe me ... dealing with iPhone is the ugliest of all mobile platforms.
When your distribution channel is tied to your software platform, that's when it's starting to smell. When you also have lots of rules about what gets in, that's a first sign it is not sustainable ... throughout the history businesses have always been interested in eliminating the middle-men. That's one reason web-apps are getting so popular.
And now here comes the iPad, which promises to do for books what iPod did for music. I'm failing to see how this will work, since Amazon is already there, and I can't picture myself watching movies on a tablet.
But maybe Jobs knows what he's doing, I really don't know ... what I do know is that my colleagues that were ecstatic about iPhones are now switching to Nexus Ones and Druids. And the iPhone used to be cool, now it's just popular ... the only reason we are supporting the hell of the App Store approval process.
The SDK is free.
To have sustained competitive advantage, you need to be able to say goodbye to the current stars.
I don't know, but I'll ask it at the next Android/Chrome OS meeting.