Has Microsoft placed its last mobile bet?

When Microsoft first started talking about building mobile-phone software back in the late 1990s, handset makers that had been in the market for years scoffed. Sure, Microsoft was a huge software developer, but making software for mobile devices is different and more complicated than for PCs, they argued. After all, by the late '90s, some companies had already spent decades developing their mobile platforms.

But Microsoft, with its deep pockets, worked away at it and by last year, after first launching in 2002, Windows Mobile had a respectable 13.9 percent of worldwide smartphone market share, according to researchers at Canalys.

This year brought an abrupt backward slide. By the second quarter 2009, Windows Mobile had slipped to just 9 percent market share, its lowest since early 2006, Canalys said.

Now the questions that most mobile onlookers ask are: what happened and can Microsoft reverse the slide?

While most of them agree about what happened -- in a nutshell, the iPhone -- there's some disagreement over what's to come. Many analysts are saying that Windows Mobile is too far behind and will fade into obscurity or that Microsoft will quit the business. But others say mobile is too important and so Microsoft will buckle down now and invest in a turnaround.

Even Microsoft executives admit they haven't done a very good job of keeping up with the competition. At a meeting with analysts in July, Robbie Bach, president of Microsoft's entertainment and devices division, acknowledged that Windows Mobile has not performed well. While the software works well for business applications, other consumer-centric aspects like browsing, media and video aren't as "rich" as they need to be, he said.

Analyst Jack Gold of J. Gold Associates agrees. Part of the problem is that Microsoft hasn't updated Windows Mobile to include capabilities that people want, he wrote in a recent report. .

Despite the obvious trend in the market toward touchscreens with user interfaces similar to the iPhone's, Microsoft's first response has only just emerged with Windows Mobile 6.5, more than two years after the iPhone hit the market. Gold called it a minor release that isn't apt to draw hordes of new phone buyers.

Microsoft's slide has happened while the market for smartphones is growing at a brisk pace, fast enough to accommodate new devices like the iPhone. From the second quarter of 2008 to the same period this year, smartphone sales grew 13.4 percent, during otherwise dismal worldwide economic conditions, according to Canalys.

In the second quarter of 2009, just two years after its introduction, the iPhone surpassed Windows Mobile, selling 5.2 million phones and garnering 13.7 percent of the market.

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