So Google is an engineer's dream and everyone is so nice and there are huge incentives and all that, ok... but if that works so well, why have they failed to come out with another product that is unquestionably as successful/profitable as their advertising platform has been? (the core of which they didn't invent, they stole it from Overture)

Just saying, if you take Google and you remove that particular aspect of their business, there would be no business. So like, 90% of the engineers' efforts account for what, like 5% of the profits? Hardly an approach worth emulating unless your startup happens to have a golden egg laying goose like Google.