After years of releasing essentially the same OS, competition started innovating. When the iPhone was announced, Steve Ballmer laughed at it, saying Microsoft had sold millions of phones while Apple, at the time, had sold zero. Fast forward to today, and things are completely different: Windows Mobile has found its way to irrelevancy while millions of customers are using, and loving, their new Apple or Android handsets.

The line between consumer and business is blurring. Turns out suits also like games on their phones. It’s not all about work — Our phone is now our life, and we all know life isn’t all about work.

The competition is here and it’s fierce. Apple and Google released new operating systems that are a joy to use and consumers love. Suddenly Microsoft found itself in big trouble, finally starting to realize that updating an OS isn’t about skinning a 10+ year old codebase and calling it a new release. It’s like they say, you can put lipstick on a pig, but at the end of the day, it’s still a pig.

It’s no wonder Microsoft wants a piece of the market. After all, there are more phones in the world than there are PCs. And guess what? phones are PCs.

So why has Microsoft been releasing junk all this time? It’s inexcusable, really, but there are three reasons why:

First – We all know that lack of competition hinders innovation. Always.

Second – Microsoft had actually a poor understanding of the market and the potential it has, and perhaps most importantly;

Third - The Windows Mobile division lacked talent, and teams were ultimately turning great R&D material into uninspired products. Here’s a great example of this:

Right before the iPhone was announced, Microsoft was hard at work on the next major version of Windows Mobile, codename Photon. It was to finally replace the outdated kernel found since Pocket PC 2002. Microsoft however, had promised the OS was designed in a way that would merge touchscreen and non-touch screen versions into one single OS. Wait, let’s stop right there. One OS that would merge touch screen UI with non-touch UI? Yeah, exactly.

The iPhone was Microsoft’s wake up call. with its launch, it became clear that a phone with a Touch Screen needed a specific, touch-oriented user interface. And it didn’t need to suck. Which was exactly the opposite of what they were building at the time!

So they went back to the drawing board. Steve Ballmer got more involved, Microsoft started looking for talent, and even spent half a billion dollars to buy Danger, the makers of the Sidekick.

If spending half a billion dollars on a company doesn’t show you’re serious, I don’t know what does. Sadly, The acquisition was a complete failure. Complete. Failure. All of the original employees are now working somewhere else, the sidekick brand lost a lot of its value, and we won’t even go over the data loss fiasco that happened last year.

Hopefully, Microsoft has learned their lesson. Windows Mobile is at stake. If it wants to dominate the market, it needs a complete overhaul, right now. And from the reports we’ve been seeing, it actually looks like they’re doing just that.

We will see if Microsoft is now ready to compete next week during Mobile World Congress. DeviceWay will be there and will bring you every detail.