Updated: Android’s Secret Sauce? Google’s Advertising Rev-Share Deals With Carriers

UPDATE: Google (NSDQ: GOOG) provided a statement today, saying that it is sharing advertising revenues with carrier and handset partners, but clarified that it is limited to search and does not extend to other applications, like YouTube or Maps. They said it was a pretty standard deal, and works across all Android devices that have Google search. “We share revenue on search, not on mobile applications,” a Google spokesperson said. “The same is true for non-Android devices that use Google as the default search engine.”

In just 18 months, the number of Google Android phones being shipped has soared to 60,000 a day, and over that period countless new devices have been released by handset makers for sale by carriers worldwide.

Nothing typically moves this fast in wireless. So how has Google done it?

Well, at least part of the answer appears to be that Google is sharing advertising revenues with carriers that use Android, according to multiple sources who are familiar with the deals. In some cases, sources said, Google is also cutting deals with the handset makers. The revenue-sharing agreements only occur when the handsets come with Google applications, like search, maps and gmail, since that is not a requirement of Android. Google declined to comment, and said terms of its agreements with partners are confidential. A number of carrier and handset makers that I spoke with about this declined to comment.

For other handset makers, this will make the playing field significantly more competitive and may change who the carriers and handset makers decide to work with. Some handset makers may be forced to do similar deals, but for those who aren’t in the advertising business, it could spell trouble. On the flip-side, this is good news for carriers, which have been looking for new revenue sources that could help pay for the next generation of networks that will cost billions.

To be sure, any checks that Google sends today are likely small. Advertisements in applications like gmail and maps are nearly non-existent, with the vast majority being displayed in search results. However, by many estimates mobile advertising is set to take off. Google has agreed to pay $750 million for the mobile ad network AdMob. That deal is still under regulatory review. Google has been clear from the start that it planned to give away the operating system and make money on advertising, but it hasn’t said that it was willing to share in those riches.

The deals put Google’s rapid accomplishments in the space into a whole new light. Already Google was sharing a portion of the applications sales from within the Android Market with the carriers, but this sweetens the pot even more.

Android had a busy week at CTIA, which ended today, with the announcements of a bunch of new phones that run the Google operating system. Samsung announced the new high-end Galaxy S, while Sprint (NYSE: S) announced its first 4G phone developed by HTC, and AT&T (NYSE: T) announced that the Dell phone will be available soon. Kyocera, which hasn’t made a smartphone in six years, came out of retirement to make its first Android device, a low-end phone that could easily be free with carrier subsidies.

And it’s only been about a month since the Mobile World Congress in Spain, where numerous handsets were also unveiled; Google’s CEO Eric Schmidt had a keynote address there. At the show, he said the company doubled the number of phones it was shipping over the past quarter to 60,000 handsets a day. By our calculations, if that rate stays constant, Google could ship roughly 22 million phones this year. If it continues to double every quarter, it could hit 27 million.