The Wall Street Journal writes that Google gives out the Android OS for free and hopes that its popularity will push it close to the 1 billion user milestone:
Google is giving away the Android software for free to device makers, who are using it to power dozens of popular devices. By spreading Android, which is growing at a rate of 160,000 new handset activations per day, the company ensures that its Internet search, maps and other ad-supported services will endure as users shift to mobile devices.
“If we have a billion people using Android, you think we can’t make money from that?” Schmidt asked rhetorically. All it would take, he said, is $10 per user per year. Among other things, Google might earn such sums from selling access to digital content from newspapers.
Android Central also adds their thought on possible sources of revenue from Android:
What else they have in mind to go along with paid news, Schmidt didn't say, but some sort of music service has been tossed around a lot lately, too. Make it as functional and personalized as everything else Android, and you got my 10 bucks Mr. Schmidt.
A billion handsets. That is a lot, making it seem that goal is unlikely, considering that there are probably less that than 1 billion smartphones currently used in the world. In fact, 1 billion seems like such a stretch that Androinica thinks it is likely unattainable:
I love me some Android, don’t get me wrong, but to say that “all we need is a billion Android devices in existence and poof! we have $10 billion” is a complete longshot.
Phandroid channeled my thoughts when they wrote that "even without 1 billion users Android still stands to make a pretty penny for Google as the platform continues to get a strong footing in the mobile market."
Image from Android Central