Their assertion is that the cost of hardware has been falling for mobiles, whereas how much the software on the phones cost, relatively, has been rising. They also see a lack of innovation, and believe that an open source environment will not only encourage innovation and software development, but ultimately lower the cost of phones. Of course, offering $10 million to aspiring developers helps as well.
They made it a point to mention similar projects, like OpenMoco, that offer an open-source platform for a phone. Google's efforts are different, they claim, due to the momentum it has in the industry along with the mass of Google itself backing up their new endeavor. Time will tell, of course, and a year from now we'll see if this was the right choice.