Google Says Android Money Comes from Mobile Ads

Google's Android operating system is not material to the search engine, but Google makes millions of dollars from the advertising sold on Android smartphones sold all over the world. Android has become Apple's iPhone foil.

Google CFO Patrick Pichette said the Android operating system is not material in answer to a financial analyst's question about how the company sees its investment in the platform paying dividends.

"Android is not material to the company," Pichette said on the second quarter earnings call July 16, noting that Google had no hand in the launch of some key Android products, such as the creation of the Motorola Droid X, which went on sale from Verizon Wireless July 15 and has already sold out.

"[Android] is not a huge resource investment, but it's a formidable return in that what you have is the entire ecosystem exploding."

Asking how Google makes money from Android is fair. Apple makes beaucoup bucks from selling millions of iPhones, with more than three million of the new iPhone 4 sold in the first three weeks.

Android is an open-source operating system and phone makers are free to build phones with the OS for carriers to sell at whatever price point they desire. And phone makers are doing this, with 160,000 Android devices shipped daily.

Google makes money not directly from Android but in the mobile ads it pairs with search on Android, iPhone and other smartphones on the market.

While Apple CEO Steve Jobs famously said people are doing searches in smartphone applications instead of through smartphone Web browsers, search grew 300 percent on Android phones through the first half of 2010, said Jonathan Rosenberg, senior vice president of product management for Google.

"What is the most popular app on these devices?" was Rosenberg's rhetorical question on the call. "The most popular app on these devices is a browser. What do they [users] do [with them]? They search an order of magnitude more than they have on any previous smartphones in the past. The combination of people browsing on these connected smartphones and searching is basically the formula on how Google succeeds."

Other new ad formats, such as click-to-call ads, are also boosting Google's bottom line.