There's no question that the iPhone started a revolution in 2007, a revolution that by now, has turned every phone company, and even some PC companies like Dell or Lenovo, from their way and and made them change direction from wherever they were pushing smartphones, to a direction that ensures all phones have big screens and touchscreen, with a more modern and intuitive OS than what used to exist.
As Apple was charging through phone markets, competitors had a hard time keeping up. In fact, their profits were dropping so fast, it made their heads spin. They were so dazed and confused seeing how no amount of "improvements" they threw at their mobile OS's didn't manage to flinch the iPhone, and the only thing that could've saved them would've been a miracle.
Google saw the need of a mobile OS that would unify all manufacturers long before iPhone was even out. In fact they bought the Android company in 2005. However, until 2007 when they saw and felt what a mobile OS could truly be, they had a different vision of their touch based mobile OS, and much less revolutionary.
1. Copying what works
In 2007 they started working furiously to change the interface and how Android worked, to resemble iPhone for the most part. This wasn't necessary a bad thing. They tried to copy what people loved most about the iPhone, and introduced their own innovations on top. It's not point in reinventing the wheel, when you can copy the wheel and focus on adding big improvements to it.
2. Strength lies in numbers
Android didn't even need to beat iPhone at its core advantages, because Google had a much more powerful strategy in mind - the one that allows them to be not on just one phone model, but on dozens or hundreds of phones, from all sorts of companies. No matter how influent Apple would be, how much media attention it would get, or how much polished the iPhone would be, their strategy was an almost sure-fire way to ensure that it would be the platform of choice in the end.
3. Great partnerships
The strategy alone wouldn't work by itself. Google had to get some great partners to show the true potential of Android. One of the first partners was HTC, which has always been an innovative and "early adopter" kind of company. They were just at excited at the opportunity as Google was. Their first phone, the G1, did good, and their next phone, the Hero, was a home run, winning even an award for being smartphone of the year. Seeing the potential of Android, other manufacturers, like Motorola and Sony Ericsson, joined them, and they, hit some home runs with their Droid and X10 phones, too.
4. Pushing the market forward
Google didn't feel like things are moving incredibly fast, which is why they decided to make their own phone with the help of HTC, and thus the Nexus One appeared. The Nexus One was considered the first true competitor to iPhone, and with its help, Google managed to push manufacturers to adopt better hardware as well, so using and Android phone would be a smooth experience. Google was successful in this, and soon everyone started launching only high end smartphones with hardware even better than what the Nexus one had.
5. Improving performance
Where to, next?
These 5 big steps or milestones have helped Android beat iPhone in OS marketshare and it's continuing to grow furiously, becoming more an more of a menace for other older and more established platforms like Symbian or Blackberry.
Next, Google will announce another huge milestone in Android's path to greatness and mobile domination - an overhaul of its UI. iPhone's UI has been touted as the most intuitive mobile OS out there, but Android might soon capture that flag as well, and become not only the most popular OS, but the most intuitive and well designed one, as well.