The 50 most promising Android-based applications Google receives by March 3 next year will each win their developers $25,000 for further development work.

By May 1, those 50 will have been whittled down to 10 developers chosen to receive $275,000 and another 10 chosen to receive $100,000. At this point, a second $5m competition will launch, following the launch of actual handsets that are able to run Android applications.

Developers get to keep all their intellectual property rights, Google said.

Android is an open source software bundle for mobile phones that Google hopes will shake up the historically proprietary world of the mobile internet.

It includes a Linux operating system kernel, a Google-built virtual machine called Dalvik, drivers for hardware such as cameras and wireless radios, a small database engine, an application framework, and a set of common apps such as a browser and mail client.

The SDK released yesterday provides a set of APIs for building Android apps with Java. It comes with a plug-in for the Eclipse development environment.

Android is backed by the Open Handset Alliance, a coalition of 34 wireless companies that last week pledged to support Google’s move into wireless.

The OHA includes among its members: T-Mobile, Sprint Nextel, NTT DoCoMo, Intel, Broadcom, Qualcomm, Motorola, HTC and Samsung.

Our View

The prize competition is a shrewd cost-saving move by Google.

The company is primarily interested in getting Android applications deployed as widely as possible — with the knock-on effect of making it easier for Google’s revenue-generating online services to reach mobile users.

For a paltry $10m, it stands to inspire scores of independent developers to learn and build with Android, with at least 50 applications anticipated in the first few months, for less than the cost of a couple hundred salaried developers.