Just a few years ago, Microsoft looked like a real contender in the mobile-phone market. Windows Mobile accounted for about one quarter of all Smartphones as recently as 2004, and it was gaining ground. Then Apple and BlackBerry left the software giant in the dust. on February 16, at the wireless industry conference in Barcelona, Microsoft unveiled its latest effort to get back into the game: the renamed Windows Phone operating system.
Microsoft needs to be a player in the Smartphone market. Tasks once done on personal computers, are migrating to mobile devices. iPhone, Blackberry, and other phones have become the preferred way to read e-mail, check out Facebook or catch up on the news. Total shipments of Smartphones will more than double between 2009 and 2013, so Microsoft’s new mobile software has to be different to convince their customers that they are going to fundamentally change direction and regain share.

Windows Phone is much improved and has the advantage of easily handling word processing and spreadsheets sent from PCs. It will also be more integrated with Microsoft’s Xbox 360 gaming console and Zune music player, so users can share music and videos among their Microsoft devices. But that won’t solve another challenge the company faces in attracting customers: independent software developers who create new applications for mobile phones have mostly ignored Microsoft and focused instead on the iPhone and Google-backed Android phones. Developers have cooked up more than 140,000 apps for the iPhone alone. There are about 800 available in Microsoft’s online mobile store, though the company estimates 20,000 applications will ultimately run on its new operating system.

Microsoft has begun working more closely with hardware partners, such as HTC and LG, to share engineering resources and better customize their software to their particular phones. They also plan to reduce the number of hardware partners from 58 at the end of 2008 to between a half dozen and a dozen to gain more control over hardware and make sure the total experience is consistent and better.

Microsoft may look like they’re caught in a box right now, but analysts say not to underestimate their potential. They have a lot of funding, they have terrific engineering resources, and the game is not over.