According to Google CEO Eric Schmidt, Android phones generate enough money as it is to cover any costs of creating software for the phones. Android phones get everyone connected to the internet, while these people are using the internet they are viewing ads that are created by Google, thus bringing in revenue for the company. Now that they are activating around 250,000 phones a day and more, they are increasing revenue each day.
Schmidt also believes there will be a day where there are 1 billion Android phones worldwide, and by charging $10 a year per user, Android could be a $10 billion revenue per year which is half of which they get now($21billion). One other way they could make profit through Android is creating a google mobile music store and selling music and videos to Android users. As we already know, Android is provided free to the manufacturers, so this is very interesting that Google can make this much potential profit through their mobile phone industry.