Nine ways of looking at a Google phone

Google (GOOG) announced on its mobile blog Saturday what dozens of staffers had already leaked: the company has given employees around the world free handsets running its Android mobile operating system. The idea, according to the official report, is to have Google’s own people test various advanced features and offer feedback to the company’s designers — a process known in the business as “dogfooding” (as in “eating your own dogfood”).

Not surprisingly, given Google’s financial clout and the power it wields over the Internet, the experiment has launched a storm of speculation about what it means. As we sort through the theories, we count at least nine ways of looking at the Google phone:

1. Google is in the process of designing an unlocked cellphone that it plans to sell directly to the public online — bypassing the mobile carriers and brick-and-mortar retailers — sometime next year. This is the line TechCrunch took first and the Wall Street Journal has picked up, citing unnamed sources “familiar with the matter.”  This theory underlies much of the theorizing that follows.
2. Google has watched with dismay as smartphone makers tweak the Android OS to suit their needs, fragmenting the software ecosystem and scaring off developers. “By putting its stake in the ground,” writes GigaOm‘s Om Malik, “the company is hoping that it doesn’t make the mistake that Microsoft made by dragging its feet in releasing Zune and ceding the market to Apple’s iPod.”
3. Apple (AAPL) has finally met its match in a competitor that has the resources, the partners and the staying power to challenge the iPhone. This, finally, is the real iPhone killer.
4. The iPhone, despite the failure of AT&T’s (T) network to keep up with bandwidth demands in high-profile urban markets, continues to sell like crazy. Google realizes it has to move fast or the game will be lost.
5. A Google phone sold without a subsidy from the mobile carriers would be prohibitively expensive — at least $400, and probably more like $500 or $600, according to Ian Betteridge’s back of the envelope calculations. (See his comments here.) A carrier like T-Mobile (DT) could sell the same phone for a fraction of the price.
6. Google could subsidize the phone out of its own pocket, perhaps giving it away for free to drive more traffic to its revenue-producing ads — a strategy that’s worked for nearly every other project in Google Labs.
7. If Google were to try to sell a smartphone below cost, the company would be facing a 21st century version of the Microsoft (MSFT) antitrust trials, and the start of a long, slow decline.
8. Google is about to alienate the very hardware manufacturers it’s counting on to carry the Android flag. Why would customers buy a Motorola (MOT) Droid, for example, when they could get the official Android smartphone from Google?
9. Google has no intention of making its own hardware. The so-called Google phone is actually  the HTC Passion (AKA Bravo), an Android 2.1 smartphone set for U.S. release by T-Mobile in January. The “dogfooding” exercise is exactly what Google said it was — a way to test a bunch of advanced Android features on a friendly user base before they go public.

[Follow Philip Elmer-DeWitt on Twitter @philiped]