Larry's playing catchup with Facebook while thinking he can be Steve Jobs, and that, together with guarding the cents by removing the little things that made life @Google awesome (bagels anyone?) has led to low morale among the workforce.
Geeks with low morale don't get shit done.
They don't innovate. They don't create.
Google staff aren't code monkeys, they're not going to stick around to keep the seats warm.
The good ones will spend every hour of the day doing the bare minimum required to still get a paycheck while finding a new job.
It's money not passion that's preventing them leaving. And that's a pretty depressing atmosphere to work in.