Google's mobile phone project is actually a software-only project meant to compete against licensed mobile OS competitors like Symbian or Windows Mobile, says a purported insider from the industry speaking with the International Herald Tribune. While some had projected that the result would be an actual device, the new report dismisses notions of Google-branded hardware; any hardware seen by earlier sources was a demonstration model made as a proof of concept, according to the new report.

Instead, the development would focus on a Linux-based, open-source OS that would be used both to break the hold of carriers on software choices as well as offer a real alternative to expensive phone OS licenses. Unlike Windows Mobile, the licensing plan would be free. Google would recoup its development costs through targeted ads much in the way it has through AdWords and AdSense on the desktop, the source alleges.

The OS would potentially drive down the costs for cellphones running the software and could also help smaller carriers gain parity with larger competitors like AT&T in the US or Vodafone in Europe and many other territories. Small providers rarely have the resources to develop or sell the custom programs that often ship from larger companies and which distinguish their handsets from competitors.

If substantiated, the news also improves the perceived relationship between Google and other phone makers, some of whom use one or more Google-made programs installed on top of another operating system. A completely separate device would place Google in a direct conflict of interest with Apple, as Google chief Eric Schmidt currently sits on Apple's Board of Directors and is believed to have had an influence on Apple's decision to integrate Google Maps and YouTube with the iPhone.