How Google Will Make Money from gPhone

San Jose - Eric Schmidt promised that the “Open Handset” alliance would enable phones that will give consumers a much fuller Web browsing experience. That means Internet advertising could be a bigger part of revenue for the mobile industry than it is today.

As a result, carriers could have more options. They could give away phones for free in exchange for a share of the ad revenue, which Google has already said it would do. Or they could lower monthly subscription fees. In this environment, the phone companies would still be better off because they would benefit from an explosion in consumer demand for phones and services. Link.