There are lots of conflicting rumors swirling out there, including the one I place the most stock in ... namely that the Google Guys have been evaluating the pluses and minuses of the hardware vs. non-hardware approaches, and still haven't made a final decision.
The only reason I think they'd even consider getting anywhere near hardware is their frustration with the blockades they've faced in arenas where they didn't control the "hardware". Namely, their enormous frustration with hard network buildout.
dilleet, Here's a hardware platform for Google or anyone
Open-Source Hardware
A reconfigurable handheld device could foster a community of hardware hackers.
Software has become easier to customize in the past decade, but hardware, for the most part, remains closed: Apple's battle to keep people from hacking the iPhone is a case in point. Although most consumer electronics are collections of smaller devices--cell phones typically include cameras and voice recorders, for example--users can't swap out the devices or modify the way they work. Bug Labs, a startup based in New York City, is hoping to change that with its new device, the Bug, scheduled to start shipping late this year.
The Bug would allow users to design their own electronics and customize them however they want. CEO Peter Semmelhack explains that the foundation of the device is the Bugbase, a minicomputer running Linux that users can program. It has ports for up to four device modules, which snap in and out of place. Among the first modules the company expects to offer will be a GPS system, a camera, a motion sensor, and an LCD screen. But it also plans to offer new modules at a rate of about four per quarter, and it's encouraging other manufacturers to follow suit. "We think we're an enabler company," says Jeremy Toeman, who handles marketing for Bug Labs. He says that he sees the company serving as manufacturer and resource for many smaller companies that could grow up around it.
Users of the Bug can put modules together as they see fit and then write or download code to make them operate as required. They are then free to share designs and programs with other users.
The Bugbase will be about the size of an iPhone, and its modules will be about two and a half square inches. Semmelhack says that the product will be truly open source: not only will source code for the software interface be freely available, but so will device schematics.
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