No, I don't think this will solve anything.
The problem with Google is that it is sized to deliver big brands, big scale and big projects.
First. Google today cannot deliver small brands because failure is very expensive. Every Wave, Buzz, Knol costs Google because future enterprises are less likely to want to try their products.
Startup culture could no longer exist in Google, because the salary means that the people will be taking risk with other people's money, and it doesn't work for early stage projects.
Secondly, Google cannot deliver small projects. I can relate this to my past history working at a large mining company, there are some mineral deposits that they may not develop but sell off because it is too small for a company their concern. The management overhead is simply too big.
Finally, to deliver large projects require specialist departments. The functional structure is there to deliver this. The alternative would be a matrix structure where there will be a lot of confusion as to who reports to whom, or serious duplication.