I had read they had a "Dream" android phone prototype they were working on that was blackberry like [1]. There was also rumored to be a second one that was more iPhone like slated for down the line, but when the Apple demo happened Google immediately scrapped their blackberry like phone and the second one became the first.

Interesting that Google recognized the importance and adapted quickly while Ballmer laughed it off: https://www.youtube.com/watch?v=eywi0h_Y5_U

[1]: http://www.theverge.com/2012/4/25/2974676/this-was-the-origi...