Google CEO Eric Schmidt said that the forthcoming Android 2.3 operating system will support near-field communication chips for mobile payments, a development that he expects will lead to the launch hundreds of mobile payment startups.

"This could replace your credit card," said Schmidt in an interview at the Web 2.0 Summit at the Palace Hotel in San Francisco on Monday.

This, for Schmidt, appeared to be the Nexus S, Samsung's successor to the HTC Nexus One. Schmidt coyly avoided identifying the device, allowing only that Google would not make a Nexus 2, even as he acknowledged the vague similarity between the letter "S" and the number "2."

The next version of Android, version 2.3 or "Gingerbread," is coming in a few weeks, Schmidt said.

Like everyone in the tech industry these days, Schmidt expressed optimism about the revenue potential of mobile devices and applications, particularly in the context of location-based services. "I don't think people understood how much more powerful these devices were going to be than desktop computers," he said.

He also said that autonomous search on mobile devices, whereby information is simply delivered to mobile users based on preferences, represents a significant opportunity. However, he reiterated that in the near term display advertising and mobile advertising represent Google's next billion dollar businesses.

Schmidt covered a wide range of topics with conference co-chairs Tim O'Reilly and John Battelle. Asked about the aspects of Android that remain dissatisfactory, he said that Google plans to focus on improving the application layer.

The company's initial focus was establishing volume, he said. "It's fundamentally about the math of the platform," he said.

And now that quantity is assured we see concerns about quality. Schmidt's interest in improving the application layer appears to have been anticipated by the Android developer community. Android evangelist Roman Nurik last month published a blog post in which he urged Android developers to take steps to produce higher quality applications.

Schmidt differentiated Chrome OS from Android in a way that finally makes sense: Chrome OS is for devices with keyboards, he explained, and Android is for devices that respond to touch.

Schmidt played down the notion of competition, between Google and Apple, Google and Facebook, and Google and the TV industry, which has been resisting Google TV.

"People are obsessed about the competitive landscape when what they should really be focused on is how much bigger the market is getting," he said.

At the same time, Schmidt acknowledged the importance of social data. "We agree that social information is very important," he said, hinting that competition with Facebook to become the dominant online identity and communications service provider will continue.

Register today for Enterprise Connect, which offers the most in-depth information on enterprise communications. It happens in Orlando, Fla., Feb. 28 to March 3. Find out more.