I’ve heard this from a seperate source, but buried deep within the Bloomberg Businessweek cover is this little tidbit:
[Google VP]Gundotra has also sparred with Apple behind the scenes. As Android became a threat to Apple in 2008, Apple began resisting Google’s claim to valuable location data gathered whenever an iPhone owner used Google Maps. His negotiations with Apple marketing chief Phil Schiller grew so heated that Schmidt and Steve Jobs had to intervene to settle the matter, according to two people familiar with the incident. (Apple announced earlier this year that it had developed its own location-monitoring system. Gundotra and Schiller both declined to comment on the incident.)
The other turning point was the release of the G1 which “looked nothing like the prototypes that Steve Jobs and Scott Forstall were shown by Google’s leadership”. Android’s success didn’t help matters. The rest is history.