While it had been rumored for some time, I was still somewhat surprised when Google introduced its own Android-based smartphone, the Nexus One. Of course, they didn’t really “make” the phone, but worked with Taiwan-based HTC to produce a device to their specifications. What they wound up with was a snappy GSM-based device featuring a large touch screen (no QWERTY) and a user interface that borrows heavily from the iPhone. A CDMA-based version is expected in the first quarter.

The Nexus One features a 3.7-inch OLED display, a 1 GHz Qualcomm QSD 8250 processor, GPS, and 802.11b, g, and n. It comes with a 4 Gbyte micro SD card, expandable to 32 Gytes. Nifty features include a trackball that pulses light to alert users of new e-mails or text messages. It also has light and proximity sensors, a built-in compass (we former Boy Scouts love that) and an accelerometer. There is a 5-megapixal camera with LED flash and it takes MPEG 4 videos. The phone also has two microphones, front and back, to provide noise cancellation. Using Android 2.1, they have voice enabled every text field in the device. There will be plenty written abut the specs, but the real revolution is the distribution.

Google will be selling the phone on its Web site for $530 unlocked or $179 with a two-year T-Mobile contract. For the $79.99, you get 500 talk minutes and unlimited domestic messaging including SMS, MMS, IM, and Android Unlimited Web. They also throw in unlimited nights and weekends and unlimited T-Mobile to T-Mobile minutes. A roughly equivalent two-year iPhone plan would be $39.99 for 450 rollover voice minutes (virtually unlimited nights and weekends plus free mobile to mobile), $20 for unlimited messaging, and $30 for the iPhone data plan for a total of $89.99. The battery-limited iPhone with its undependable memory costs $199 for a 16 G model and $299 for a 32 G model. In short, the Google/T-Mobile plan is not undercutting the iPhone price points significantly.

Google has gone off the reservation by offering the device directly to users on the Web. However, getting a decent price still involves a steep subsidy by T-Mobile (i.e. $351). T-Mobile is clearly going for the “consumer friendly” label by partnering up with Google.

T-Mobile has suffered with the slimmest 3G coverage in the US, and not coincidentally, they recently announced their intention to upgrade their existing 3G footprint to HSPA 7.2 network technology. They also reiterated their plan to deploy the even faster HSPA+ technology, which can provide peak data speeds of 21 Mbps by mid-2010. Apparently they are looking to avoid the difficulties AT&T brought on themselves with the iPhone introduction.

The big question is how this will impact the mobile device market as a whole. I have long held that the “unholy alliance” between mobile operators and device manufacturers that limits popular devices to specific carriers and hides the true cost by locking users into expensive long-term contracts for subsidized handsets is a business plan that limits innovation and is designed to exploit consumers (few of whom actually look at the whole cost of that fancy handset). In the enterprise environment, this type of subsidy arrangement offers almost no advantage, robs the customer of flexibility in equipping their mobile users, and creates a major impediment to deploying mobile applications.

I am most encouraged that Google is getting more involved in mobility, as they are one of the few companies with the money and the market recognition to challenge the insidious status quo. This is not the first time that Google has pushed a new paradigm (do people still use that word?) in the mobile space. When the FCC was planning the 700 MHz spectrum actions, Google took the lead in lobbying to make one of the qualifications for the C Block bidders the requirement to support “open” (rather than carrier-captive) devices. In the end, Verizon won the C Block with a bid barely 3% over the FCC-defined minimum. While the government may have lost out on getting a better price for the 22 MHz of C Block spectrum, consumers will be the eventual winners.

While it is still early to be calling Android a winner in the mobile device shoot-out, they have all of the attributes to make them a viable option beside RIM and Apple. The ability to better integrate Google Voice and the rest of the Google Web-based tools will make that case even stronger. However, Google also appears to be playing in a much bigger game that looks to bring the same type of openness and creativity to the mobile space that we have found in the Internet. Let’s hope they’re successful.