I'm sure the gains from AdSense and Gmail alone outweigh anything they lost. Also engineers can stay happy if they work on things they like more often. So there could be an implied cost (by losing employees) to not allowing 20% time. I'll also add that it's almost impossible to stay focus on 1 thing 8 hours+ a day for 5 days a week. Even if there is no 20% time I'm sure they still lose time to unproductive activities. Maybe 20% time actually captured some of the time that would otherwise be spent browsing the web or making pointless comments like this on HN.