Google Inc.  (NASDAQ: GOOG) is testing the old “why buy the cow if the milk is free” cliché with the Android Mobile OS.  The question remains whether the search engine giant will ever earn a nickel from the system, which it gave away for free.

So far, Google’s plan is working brilliantly.  Data from Nielsen shows that Android is the most popular OS among new phone buyers in the past six months while Apple Inc.  (NASDAQ: AAPL) and Research In Motion (NASDAQ: RIMM) were in a tie for second place.  All hope is not lost for the incumbent smartphones. however.

“Among all smartphone owners, BlackBerry still holds the dominant share with 31 percent of the market, though its lead over Apple is declining,” Nielsen says.  “Twenty-eight percent of smartphone owners have Apple iPhones, compared to 19 percent who have Android devices.”

Nielsen’s figures underscore Android’s growing popularity that has been noted by comScore among others.  Now comes the tricky part — making money.  Google has not spelled that out, which concerns some investors.

Speculation is  that it will be based around ads, just like the search business.   Does this mean that users will see ads flashing across their phones?  Probably not because it might annoy users. Does Google expect Android to boost mobile search traffic?  Of course,  but then what?  Maybe the company hopes that mobile ads will attract advertisers because they are more targeted.

Tom Krazit of CNET argues that Android was developed too blunt the rise of Apple and the iPhone and attract more advertisers for its mobile search business.

“To do that, Google has had to make a series of decisions that favor partners over the actual Android user, such as allowing companies to muck up Android handsets with bloated software and control the pace at which new Android features arrive on handsets,” he writes.  “Google argues that giving the world a competitive alternative to Apple’s iOS software–tightly controlled by Apple and AT&T in the U.S.–is in the best interests of end users, who three years after Android was first announced now have a legitimate choice should they not want an AT&T-locked handset or a dowdy BlackBerry controlled by their work IT guy. ”

Kris Kristofferson penned and Janis Joplin famously sung the immortal words “Freedom is just another word for nothing left to lose.”  The opposite is true for today’s telecom and headset companies.  Their biggest fear is losing control of their businesses to free services such as Android. Google probably spent next to nothing developing Andoid because it is open source, so it has nothing to lose and everything to gain.

–Jonathan Berr

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