From the demo, it looks like Google's smartphone platform, Android, involves some new user-interface touches and totally new technology (Compass Mode) that will make it a strong competitor to iPhone.
We'll see if iPhone 3G has enough to preserve some distance.
I noted in particular that Android uses the WebKit browser engine (read Safari, iPhone) so Google is not reinventing the wheel here and this mobile browser-rendering experience will likely match the iPhone's. Important, given iPhone's 5.5 million installed base which may grow by another 10 million this year.
Here, Google's Steve Horowitz gives the overview (from Jonathan Richards with thanks to UberPulse.com).
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