Paid Content reports that Google has a revenue-sharing deal with the major wireless carriers, all of whom offer Android phones, and even some of the handset makers (who aren't named, though they probably include long-term partners like HTC and Motorola). Paid Content notes that mobile advertising revenue, which is the source being shared, is not all that large right now, though MediaMemo's Peter Kafka disagrees with that assessment.
Interestingly, this deal only includes phones branded Google (including the Droid, Nexus One, and G1), which excludes any phones that ship with external UI enhancements like the HTC Droid Eris or the Samsung Behold II. The Google-branded phones have to retain Google's core apps, all of which deliver advertising revenue, so it's not that surprising that they'd only share revenue from phones that make them money. Those apps include search, Gmail, and Maps, although it's really only search that makes brings in revenue at the moment.
This isn't without precedent, and it's actually not all that sinister--PC manufacturers have been paid to bundle in apps for literally decades, from AOL install discs to free 30-day trials of MacAfee antivirus, and this is even less sketchy, since the customer won't feel any effect at all. But the news does emphasize the more financially troubling aspects of Android, largely that despite being created by Google, it's totally possible for Google to see not a dime off of an Android phone. The OS is free and open-source, after all, and indeed some of the most popular smartphones are lacking the apps that actually make Google money. So Google is simply providing an extra incentive for carriers to offer phones that do.
Reception to Android phones has been mixed, overall. The Motorola Droid, for example, has been a huge smash hit, reaching the million-phones-sold mark faster than the original iPhone. But Google's own Nexus One, the very first smartphone released under the Google name (others, like the G1 and even the Droid, are listed as "...with Google"), has been a complete bomb, despite offering the most impressive hardware on the market and achieving mostly positive reviews.
Google may need to pay carriers to keep offering the Nexus line--all of the most exciting upcoming Android phones will not be branded "with Google," including the HTC Evo 4G, Samsung Galaxy S, and Sony Ericsson Xperia X10. But Google can't keep paying carriers forever, no matter how nominal the price--hopefully Google can drum up enough public support for its native phones to actually make money off of free software.