This is an interesting point, but I don't see how it relates to Google doing away with 20% time.
When that focus shifted to exactly what Page and Brin had criticized themselves in 1998, we can clearly see that it's not the interests of the users being served anymore.
The decline of 20% time appears to go hand in hand with this shift from the focus on the user to focus on the advertiser and other interests first. I'm not claiming direct correlation but it's not a stretch to say there might be some connection.
Of course, putting it behind a paywall would have been a failure. But they could have possibly done a freemium model, offering better and more detailed search capability for a small monthly or yearly fee.
All the analytics, google alerts, etc would have been non-free products as well.
It just would have made them much, much, much less money.
But god damn that search engine would be amazing by now.