So far, the netbook market has been a battleground between Windows XP, and desktop iterations of Linux. Now there are strong hints of a third contender on the way: Google’s Android.

So far, Google’s Linux-based/Java developed Android operating system has been restricted to a single “Google phone” HTC’s G1 (soon to be upgraded to the G2 or “HTC Magic”, which will see release in New Zealand).

But now, Unwired reports that a Google Android development team has set up shop in Taiwan, home of phone maker HTC, and netbook pioneers like Acer, Asus and MSI.

With Dell and others mooting a netbook with a built-in 3G chip, why not put Google’s lean and user-friendly OS on one of the micro-laptops? There is no reason Android could not be used as notebook OS and, with a 3G cellular radio built in, it could pull various location-aware tricks with Google Maps and so fourth.

It could be happening. Another, more hardcore geek site, quotes an Asus engineer as saying an Android model could appear in the company’s eee PC netbook range by the end of the year.

Google's plan to make money from netbooks
1. Services Meanwhile, Google chief executive has praised Michael Dell’s plan to offer ultra low-cost or even free Dell netbooks, if the customer signs up to a two or three year data plan (yielding up to $2000 in service fees, split with a telco, over the lifetime of the laptop).

2. Advertising Mr Schmidt told a roomful of Morgan Stanley analysts there’s also a second way both subsidise netbooks, and draw more long-term revenue: advertising: Google AdWords delivered to a netbook.

3. Cloud fees And a third: proliferating netbooks (which have minimal storage) will encourage a move to cloud computing - such as Google Apps - which is available in a free, ad-supported version and a $US50 a year Premier version.

The OS war
So far, the netbook OS market has been split between Linux (which holds around a third of the market) and Microsoft’s Windows XP.

The battle has been so fierce that Microsoft has extended the life of XP to keep it competitive in the space.

XP had been scheduled for the chop last year, but Windows Vista will not run on a netbook. By contrast, Vista’s successor, Windows 7, has been specially tooled to run on a netbook (as it already is on an Acer model at NBR Towers; more of that next week).

Worse, for Microsoft, the current (print) edition of Wired reports it can only charge $US15 per copy of Windows XP on a notebook - less than a quarter of what it charges makers of full-blooded notebooks.

The battle has helped keep netbooks in the $NZ700 to $NZ800 bracket - painful for Microsoft, but great for consumers - helping netbooks come from nowhere to take 12% of the entire laptop market (though how many people are buying a netbook as their primary device, and how many as a satellite to their hulking laptop remains a mystery).

Now, it looks like a third OS contender, Android, looks like its about to make netbooks more attractive, and more competitively-priced, still.