Almost every major handset OEM has or is launching an Android line. HTC, Motorola and Samsung, in that order, are the three leading Android OEMs so far. And PC makers such as Dell and Acer are making Android handsets as well. By all measures Android has been a huge hit for Google — and maybe its most strategic product after core search — yet all Android devices and experiences in the market today still fall short of the integrated hardware-software experience offered by the iPhone. Android has features and capabilities that the iPhone does not — especially the ultra-masculine Motorola Droid. Yet there remain rough edges, flaws and awkwardness about the user experience. (I’m not suggesting the iPhone is perfect, but it’s still the best overall mobile device in the market.) Google is clearly aware of all of this. The deep involvement of the company with Motorola and Verizon to bring Droid to market shows how it wants to realize its vision of what Android can be. To that end in late October rumors surfaced of a new “Google Phone” — a Google branded handset that would be sold directly by the public and designed/developed substantially by Google. Yesterday word got out (via Twitter and blogs that picked up Tweets from Google employees) that this mythical Google Phone had been distributed internally as a holiday gift. Yesterday during the day more detail emerged from a range of sources. Reportedly built by HTC, it’s called the “Nexus One.” According to the WSJ:

The phone is called the Nexus One and is being manufactured for Google by HTC Corp., these people said. It runs Android, the operating system for mobile phones that Google developed, they added. But unlike the more than half-dozen Android phones made by phone manufacturers today, Google designed virtually the entire software experience behind the phone, from the applications that run on it to the look and feel of each screen. The Internet giant is taking a new, and potentially risky, approach to selling the device. Rather than selling the phone through a wireless carrier–the way the bulk of phones are sold in the U.S. today–Google plans to sell the Nexus One itself online. Users will have to buy cellular service for the device separately.  

The image at the upper right is an alleged picture of the device (from Cory O’Brien). For its part, after the news of the phone started generating huge buzz on Techmeme, Google issued the following statement on its Mobile Blog:

At Google, we are constantly experimenting with new products and technologies, and often ask employees to test these products for quick feedback and suggestions for improvements in a process we call dogfooding (from “eating your own dogfood”).

Well this holiday season, we are taking dogfooding to a new level. We recently came up with the concept of a mobile lab, which is a device that combines innovative hardware from a partner with software that runs on Android to experiment with new mobile features and capabilities, and we shared this device with Google employees across the globe. This means they get to test out a new technology and help improve it.

Unfortunately, because dogfooding is a process exclusively for Google employees, we cannot share specific product details. We hope to share more after our dogfood diet.

But in the wake of all the other information now out there and surrounding the device, the statement above is a little like Tiger Woods denying he’s had affairs at this point. Perhaps this device, allegedly running Android 2.1, will be a true rival to the iPhone. Google’s recent Navigation, voice search advances and “visual search” are exciting products. If these and other apps and software have been integrated in an elegant way with the hardware, the device could be very impressive. In the meantime, to build its reputation as the most advanced platform on the market, Google is favoring Android when it does product launches (e.g., Navigation, Google Goggles), promising to bring the same functionality to other platforms (read: iPhone, et al.) sometime later. Let’s assume that this GPhone device will be sold unlocked to the public; and let’s assume it’s a GSM device so that it offers the broadest international reach possible out of the gate. All of that is great. However, one fundamental issue with the device is price. Unless Google were to subsidize the phone itself it would be probably twice as expensive as other Android handsets in the market. That would keep lots of people away. And the company does risk ruffling carrier feathers or worse by going straight to the public. Despite the fact that Google Voice is morphing into a Skype competitor, the company is several years away from being able to function as a wireless operator. In a future, potential scenario Google resells 4G WiMax from Clear (it’s an investor) and VoIP calling with Google Voice as part of a package. But Clear’s coverage is not yet able to support that model. Perhaps three years from now. On the other hand, mobile operators in the US (if not globally) need to be very afraid of pent-up consumer demand for cheaper or more complete alternatives, such as a 4G subscription that might cover Internet access in the home and on the go. The iPhone, BlackBerry and, to a lesser degree so far, Android devices have shifted the balance of power from the operators to handsets and devices. And VoIP calling options will only get better and put more pressure on carrier voice revenues over time. Notwithstanding all the carrier app stores and other efforts, the era of the “dumb pipe” is truly dawning. There will only be two ways for operators to compete going forward: with their networks and with pricing. Other considerations will be a distant second or third in the consumer mind. If Google does sell this device unlocked and online we’ll see what the carrier reaction is. Google probably figures there won’t be much (if any) backlash because their power is waning. But probably the biggest determinant of the success or failure of this hypothetical, idealized device will be the perennial and mundane issue of price.