Why would Google do this? Well, there are a few reasons. By inflating the installed base, Google could sell more Android apps. More importantly, it has the opportunity to serve more mobile ads. Remember, at the end of the day Google makes the vast majority of its money selling advertising. If more people are using Android browsers and products that serve mobile ads, the more money Google will have. So in a way, it would selling the Nexus One at cost would be similar to the old razor-and-blade model. Google practically gives away the razor and will make way more money selling the blades.