Google (Nasdaq: GOOG) may be bringing its arsenal of Android applications to the living room. According to a Wall Street Journal report, Google will unveil Android-based TV software to developers at its Google I/O conference this month.

But what does that mean?

"My suspicion is it's something like the Intel Corp. (Nasdaq: INTC) Widget engine -- which is appearing on some TVs, but obviously based on Android -- so a TV user interface and an application store," says Colin Dixon, a senior partner and broadband media analyst at The Diffusion Group. "This is just a good thing. Having an open market for apps on the TV completes the picture. We have it for PCs and handsets and now the TV."

Google wouldn't comment on its TV plans, but details have been leaking out little by little. The Android TV operating system, reportedly named Dragonpoint, is said to allow application developers and programmers to build content, games, and software programs for set-tops and TVs, all without requiring the permission of the network operator connected to, and providing services for, those devices.

Thus far, Sony Corp. (NYSE: SNE), Intel, and Logitech Ltd. are the hardware providers partnering with Google on the initiative. (See Google Tunes In to TV.)

It is likely that Google's entrance into the TV market will also jump-start competition in TV apps, an area that's oft talked about, but that has seen little traction to date. Internet-connected TVs have become increasingly common, as have new interfaces for browsing the Web on the TV. (See Hillcrest Intros TV-Web Browser.) What's missing are the applications that enhance the TV viewing experience.

Android apps that span from social networking and customized news and weather to Internet video apps à la Hulu LLC and YouTube Inc. could make their way to the TV soon. Dixon said that a Netflix Inc. (Nasdaq: NFLX), CinemaNow , or Blockbuster Inc. app is a near certainty as well, making Google competitive with over-the-top players.

IPTV providers like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have been working on their own options too, but their widgets have network limitations. (See Verizon Adds Twitter, Facebook to FiOS.) A name like Google could drive the apps to the mainstream. AT&T might even be interested in partnering with Google for its software, given that it lacks a TV app store, but Dixon said he expects Google TV to be an independent play at launch.

Spooked by Google's presence on the TV, new competitors are also likely to emerge. Apple Inc. (Nasdaq: AAPL) is amongst the most likely entrant into the TV app market. The company has done little to innovate its Apple TV platform, but it has been rumored to be considering a subscription TV service. (See Apple Video Play May Hurt Boxee, Roku .) Microsoft Corp. (Nasdaq: MSFT)'s Mediaroom could also make for a viable TV apps market, given that its software already powers TV services for AT&T and dozens of other carriers around the world.

Any TV or living room presence would help Google improve its ability to put the right ads in front of the right consumer at the right time. This allows it to improve the relevance of each ad it delivers, letting it charge more and making it more attractive to even more advertisers.

So, it's reasonable to assume Google will keep trying different approaches. It has been, for instance, conducting a trial of TV search with Dish Network LLC (Nasdaq: DISH), testing a search engine that spans the Web and Dish content. There is also, of course, the issue of Google's planned fiber rollout, which would give Google a more refined perspective on what consumers do when they have lots of bandwidth. (See Google Jumps Into Gigabit FTTH, Google's Pointy Stick , and My Town Wants Google 1-Gig! )

Google's knowledge of users' TV viewing habits, search queries, and their mobile habits could lead to some interesting targeted advertisements, Diffusion Group's Dixon says.

In the end, Google doesn't care about STBs, or the Nexus One and handset sales for that matter, Dixon says. It cares only about open access. "Google sees these vertically integrated systems that are closed appearing on the TV, like Apple and Netflix Inc. (Nasdaq: NFLX) and Xbox and PS3, and there’s no advertising going on there," Dixon says. When they're closed, you have to negotiate with vendors to get on the service. Google does extremely well when there's an open Internet market, so I think they're simply trying to establish an open ecosystem on the TV, because they know if it's there, they stand a good chance at doing well by selling advertising."

— Sarah Reedy, Senior Reporter, Light Reading Mobile