Microsoft’s latest Windows Phone OS, code-named Mango, is set to launch this fall, which is around the same time Apple Inc.’s iOS 5 comes. But can Mango be sweeter than Apple iOS 5?

Mango (or Windows Phone 7.5) is expected to give the much-needed boost to Microsoft, whose performance has “gone from very small to….very small,” Chief Executive Steve Ballmer said.

Microsoft has officially signed off on the release to manufacturing build of Mango, which marks “the point in the development process where we hand code to our handset and mobile operator partners to optimize Mango for their specific phone and network configurations,” according to the Microsoft blog.

“The Mango update for current Windows Phone handsets will be ready this fall, and of course will come pre-installed on new Windows Phones,” the blog read. Microsoft had confirmed Acer,

Fujitsu and ZTE Corp. as key original equipment manufacturer (OEM) partners to manufacture Mango devices.

The first phone to grace the updated Windows Phone 7.5, or Mango update, is Windows Phone ISI12T, manufactured by Fujitsu Toshiba Mobile Communications, which will be launched in September.

Since May, Mango has been making a buzz when Microsoft showcased its newest mobile OS. It has hundreds of new features, including:

New email Conversation View: It the user to efficiently participate in long email discussions with friends and co-workers.

Threads: It combines the user’s text, IM, and chat all into one conversation.

True Multitasking: Mango is the first mobile OS from Microsoft to offer true application multitasking.

Powerful Search Function: Mango connects apps to search results and deepens integration within the Hubs like Music and Video and Pictures.

Internet Explorer 9: Mango includes IE9 for faster web browsing and support for new HTML 5 web sites.

Cloud: Mango has been designed to integrate native phone functions with Microsoft’s cloud offerings like Xbox Live, Microsoft Office 365 and SkyDrive services

However, in terms of features, Mango is sour compared to iOS 5, whose buzz is getting louder ever since Apple gave a sneak peek in June during its annual Worldwide Developers Conference (WWDC).

Apple said iOS 5, the latest version of its mobile OS, was a “major” and “incredible” release for developers and customers alike and the iOS 5 comes with 1500 new APIs and 200 new features, including:

iMessage: iOS users can send unlimited text message through iMessage, as well as other multimedia messages over Wi-Fi and 3G. It allows you to get read and delivery receipts and real time typing indication. The iMessages can be pushed out to all iOS devices a user owns, thereby allowing, for instance, the user to start a conversation in iPhone and continue the same on an iPad right where it was left off.

Reminders: With the look of white loose-leaf paper, the built-in Reminders app in iOS 5 helps the user to manage multiple to-do lists. The reminders will be alerted based on due dates and also locations. The most attractive element probably is that the Reminders can work via iCloud, which means it can alert you on multiple Apple devices in real time. Mac users and PC users can also expect Reminders to sync with iCal or outlook when iOS 5 finally comes out.

Notifications: A new, convenient notification system in iOS 5 was introduced which combine all notifications in one place. The Notification Center can be accessed by swiping down from the status bar at the top of the screen. Apple said the new push notifications have been “scaled beautifully” and are no longer annoying or obtrusive. The notifications will be displayed on the lock screen together with stock and weather alerts. Now, when a notification appears in a lock screen, tapping the notification will automatically open the related app. The UI also looks radically cool thanks to nifty animation effects.

FaceTime: FaceTime is one of the advanced features that Apple users love. iOS 5 will allow users to access FaceTime over WiFi. You can also set it in motion with your email as ID if the activation with phone number fails. However, there are rumors that FaceTime over 3G has also been enabled in iOS 5.

Camera: With the new feature of camera in iOS 5, users can capture the precious moments immediately by accessing the camera using a shortcut on lock screen. To take a photo, just double tap the home button and then tap the camera icon. And then simply tap the volume up button to capture. New Camera also makes it possible for users to use crop and rotate, edit, red eye reduction, auto focus and auto exposure, and auto enhance (using iPhoto) function.

PC Free: Apple’s iOS 5 is “PC free”, which means iOS updates are now possible over the air. There is no need to hook up mobile Apple devices with PC to access iTunes. As long as Wi-Fi is available, iTunes sync is now automatic and possible even while an iOS device is being charged. Also back-up and restoring can be done automatically via iCloud.

Mobile Safari: The new mobile web browser now has several new features including tabbed browsing (switching between tabs is “lighting fast”) and the Safari reader feature that allows the users to quickly save stories for later reading in the Reading List. The Reading List can be synced across multiple devices.

The Mobile Safari also enables users to email story content together with link and if the user so desires. The Safari Reader will get rid of reviews, ads and other unnecessary content on the page to enable user to dive right into essential stuff.

Integration: Apple has integrated into iOS to make it easier to tweet from iPhone. There will be a single sign-in for Twitter and all related apps. Twitter UI has been integrated with the camera as well as Photos and Maps and Safari. Contacts have also been integrated with Twitter.

Delta updates: Delta updates will be available on iOS 5 i.e. software updates are now over the air and you can download only the necessary update and not the entire app/software.

Better Accessibility Settings for Those with Disabilities: Apple has enhanced the accessibility setting for users with physical disability on iOS 5. iOS 5 now support special hardware for people with visual, auditory, tactile, or cognitive disabilities. As the LED camera flash now works with a custom vibration setting, you can actually see and feel when someone is calling. Moreover, you can also set custom vibration patterns, so that you can easily identify the caller and make out the difference between a call, an email, and a text without even looking at the phone.

As Microsoft is gearing for the Mango devices launch, it has key challenges ahead in addition to Apple iOS 5 as Google Inc. is also expected to launch the next version of its Android OS, Ice Cream Sandwich, with Nexus 4G by Thanksgiving. Thus it will face both Android and iOS 5 phones that already have a head start.

Microsoft Mango could be Steve Ballmer’s best bet ever

May 26 (Bloomberg) — Greenlight Capital Inc. President David Einhorn called for Microsoft Corp.’s board to replace Chief Executive Officer Steve Ballmer, saying the software maker suffers from “Charlie Brown management.”

Ballmer is weighing on the company’s share price, Einhorn said yesterday at the Ira Sohn Investment Conference in New York. Even so, he recommended Microsoft shares because the stock trades at a “remarkable discount” to the Standard & Poor’s 500 Index while the business outperforms the average S&P company. Microsoft is Greenlight’s eighth-biggest U.S. stock holding.

“It’s time for Microsoft’s board to tell Steve Ballmer, ‘All right, we see what you can do, let’s give so-and-so a chance,’” Einhorn said. “His continued presence is the biggest overhang on Microsoft’s stock.”

Ballmer, 55, has come under increased scrutiny from shareholders as the company loses market share to Apple Inc. and Google Inc. in mobile phones and Apple’s iPad takes sales from personal computers running Microsoft’s Windows. Last year, the board docked Ballmer some of his potential bonus for falling short in the mobile industry and new forms of computers.

Greenlight, a New York-based hedge fund, added 1.39 million Microsoft shares last quarter, for a total of 9.07 million, according to a filing. The stake is worth $230.2 million. Microsoft’s shares have underperformed the S&P 500 in four of the past five quarters.

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, declined to comment.

Top Shareholder

Ballmer is the company’s second-biggest shareholder — with more than 333 million shares, or almost 4 percent. Co-founder and Chairman Bill Gates owns more than 561 million shares, or a 6.7 percent stake, according to Bloomberg data.

Microsoft climbed 4 cents to $24.19 yesterday in Nasdaq Stock Market trading. The shares have declined 13 percent this year.

Einhorn, best known for profiting from bets against Lehman Brothers Holdings Inc. four months before the firm collapsed in 2008, is a frequent speaker at the annual Ira Sohn conference. In 2006, he used his speech to discuss his recent purchase of Microsoft shares and to recommend the stock.

Since then, earnings per share have more than doubled and four of Microsoft’s product segments have shown improvement, Einhorn said. The company has also almost doubled its dividend and is now trading at a far bigger discount to the S&P 500, he said.

‘Not Getting Credit’

“Microsoft trades at a remarkable discount,” Einhorn said. “Microsoft is not getting credit for its achievements and prospects.”

Microsoft shares trade for about 9.8 times profit from the past year, or 34 percent less than the price-earnings ratio for the S&P 500. That’s the biggest discount since at least 1992 for the company, according to data compiled by Bloomberg.

Still, Ballmer isn’t taking advantage of Microsoft’s opportunities, Einhorn said. In his criticism, he likened Ballmer to Charlie Brown, a perpetual loser in baseball, football and other pursuits. The cartoon character’s signature lament is, “Good grief!”

“Ballmer’s problem is that he’s stuck in the past,” Einhorn said. “He’s allowed competitors to beat Microsoft in huge areas, including search, mobile-communications software, tablet computing and social networking. Even worse, his response to these failures has been to pour tremendous resources into efforts to develop his way out of these holes.”

Internet Losses

Microsoft’s online services business, which includes the Bing search engine, lost more than $700 million last quarter.

Einhorn, whose hedge fund manages $7.8 billion, criticized Lehman’s accounting during a speech at the same conference in 2008. Four months later, Lehman filed for the largest bankruptcy in U.S. history.

Einhorn said Lehman hadn’t disclosed its holdings of collateralized debt obligations properly and wasn’t valuing its commercial mortgage-related assets based on market prices.

His wagers haven’t always paid off. Einhorn said at the Ira Sohn conference last year that he continues to bet against rating agencies Moody’s Corp. and McGraw-Hill Cos., owner of Standard & Poor’s. Moody’s has risen 79 percent in the past year, while shares of McGraw-Hill have climbed 51 percent.

Back in 2006, Einhorn compared his investment approach to the strategy he uses in fantasy baseball, a game won by assembling the best team of Major League Baseball players. Einhorn said he’s usually reluctant to spend more than $30 on individual players because he only has $260 to buy the whole roster. Still, he said if Alex Rodriguez, then the sport’s most valuable player, were available for $35, he’d pony up.

Microsoft, he said at the time, was similar — a little higher valuation than the companies he usually buys, but “Microsoft is A-Rod.”

NEW YORK (Reuters) – International Business Machines surged past old rival Microsoft Corp in market value for the first time since April 1996, marking the latest twist in the fluctuating fortunes of two of the world’s most storied technology companies.

IBM ruled the computer industry for decades until it hired the tiny, unknown Microsoft to provide an operating system for its new range of personal computers in the early 1980s.

Bill Gates parlayed that breakthrough into industry dominance, proving his theory that software would be more valuable than hardware, so that by the end of 1999 Microsoft’s market value was three times that of IBM’s.

Throughout Seattle-based Microsoft’s rise, IBM was pilloried as an old-fashioned, immobile Goliath that could not keep up with the computing revolution.

Since the Internet technology bubble burst in 2000, the tables have been reversed, and Microsoft’s stock has been stagnant, as investors doubt its ability to move beyond its Windows operating system and Office suite of software, while younger rivals such as Google Inc and Facebook steal the limelight.

In the meantime, “Big Blue” has refashioned itself as a specialist in business software, servers and consulting, jettisoning its PC business along the way.

An investor putting $100,000 into both stocks 10 years ago would now have about $143,000 in IBM stock and about $69,000 in Microsoft stock.

Resurgent Apple Inc moved past Microsoft in terms of market value last year, and is now by far the world’s biggest tech company.

According to Reuters data, Apple’s market value stood at $308.3 billion on Monday, IBM at $203.5 billion and Microsoft at $201.1 billion.

IBM shares were down 1.2 percent at $168.07 while Microsoft fell 1.3 percent at $24.18.

Microsoft Corp. and Nokia Oyj are among four technology companies to challenge Apple Inc. ’s European Union-wide trademarks for “Appstore” and “App Store.” Photographer: George Frey/Bloomberg
Microsoft Corp. (MSFT) and Nokia Oyj (NOK1V) are among four technology companies challenging Apple Inc. (AAPL)’s European Union-wide trademarks for “Appstore” and “App Store.”

Nokia, the world’s largest mobile-phone maker, Microsoft, Sony Ericsson Mobile Communications AB and HTC Corp. (2498) all filed separate requests yesterday with the EU trademark agency in Alicante, Spain, seeking to invalidate Apple’s trademark rights.

The companies “are seeking to invalidate Apple’s trademark registration for ‘APP STORE’ and ‘APPSTORE’ because we believe that they should not have been granted because they both lack distinctiveness,” according to a statement from Redmond, Washington-based Microsoft, the world’s largest software maker.

A decision by the agency could be appealed all the way to the EU’s top court in Luxembourg. Apple, which pioneered the sale of mobile-device applications, accounts for more than three-quarters of revenue in the industry — even as Google Inc. (GOOG)’s app sales grow faster. Apple’s App Store offers more than 350,000 apps for iPhones, iPods and iPads. It will bring in $2.91 billion in revenue in 2011, up 63 percent from last year, according to researchers at El Segundo, California-based IHS ISuppli.

Amazon.com Inc. (AMZN) on April 15 opposed Apple’s two EU trademarks, according to documents on the trademark agency’s website. The dispute over the validity of the Apple rights has also reached the U.S., where Amazon, after being sued for trademark infringement by Apple, argued the intellectual property right was invalid.

Alan Hely, a U.K.-based spokesman for Cupertino, California-based Apple, didn’t immediately respond to voice mail or e-mail messages seeking comment.

Mark Durrant, a spokesman for Espoo, Finland-based Nokia, and Sony Ericsson spokeswoman Mandy Slater confirmed the companies also objected to the trademark registration.

The phrase “means just what it says, a store for ‘apps,’ which in itself is a generic term for the services that the trademark registrations cover,” Durrant said in an e-mail.

Apple’s App Store, started in 2008, offers downloads of programs from the company and third-party developers. Sales of apps from sites run by Apple, Google, Nokia and Research In Motion Ltd. (RIMM) will rise 78 percent this year from $2.1 billion last year, IHS ISuppli said.

Decisions by the EU trademark agency’s cancellation division can be appealed first to the agency’s own appeals board and later to the EU’s two top courts.

Steve Ballmer, chief executive officer of Microsoft Corp., and Tony Bates, chief executive officer of Skype technologies SA, announce Microsoft’s $8.5 billion acquisition of Skype on May 10, 2011, in San Francisco. Photographer: Noah Berger/Bloomberg
Microsoft Corp. (MSFT) may have a tougher time convincing wireless operators to support mobile phones with Windows software after its $8.5 billion purchase of Skype Technologies SA, analysts said.

Skype’s Internet-calling service will be on Windows phones, as well as Microsoft’s Xbox and Kinect game consoles, the Redmond, Washington-based company said today. Skype lets members make free voice and video calls to each other, and calls to most outsiders for 2.3 cents a minute.

Microsoft’s backing of Skype may be seen as a threat by wireless carriers such as AT&T Inc. (T) and Verizon Wireless because it could cut into voice revenue, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.

“It is kind of a head scratcher to me how Microsoft is going to navigate the complicated relationships that it has to have with carriers at the same time as it is repositioning itself as a potentially major threat to their wireless voice business,” Moffett said.

Microsoft is trying to expand in mobile devices as it faces slower growth in personal computers, the traditional market for its Windows and Office software. The company, which has lost ground in the smartphone market to Apple Inc. (AAPL)’s iPhone and Google Inc.’s Android devices, introduced the Windows Phone 7 operating system last year and struck a partnership this year to have Nokia Oyj (NOK1V) use Windows as its primary handset software.

Nokia, the world’s largest mobile-phone maker by unit sales, said last month it plans to introduce devices running Windows Phone in volume next year.

Microsoft fell 26 cents to $25.58 in Nasdaq Stock Market trading at 3:18 p.m. New York time. It had lost 7.5 percent this year before today. Luxembourg-based Skype is privately held.

‘Bandwidth Arbitrage’
Software such as Skype’s may cut into revenue for wireless operators because it allows users to make calls with data services, just like they do when surfing the Internet, rather than using traditional voice minutes. Carriers typically charge customers for voice plans and data plans separately.

Using a data plan for voice or video calls can make them much cheaper for customers, Moffett said. Google and Apple offer similar products.

“It’s certainly a threat,” said Moffett, who has an “outperform” rating on AT&T and an “underperform” on Verizon Communications Inc. (VZ), majority owner of Verizon Wireless. “We’ve broadly characterized it under the title of bandwidth arbitrage. Wireless operators make the vast majority of their profits from low-bandwidth services like voice and text, but those services are easily arbitraged by doing them over the data network, where the price per megabyte is a tiny fraction.”

‘Good Relationships’
Investors may see the Microsoft-Skype combination as a threat to carriers’ revenue, said Jonathan Chaplin, an analyst with Credit Suisse Group AG. Still, Microsoft is unlikely to push Skype services so aggressively that it threatens carrier relationships, he said.

The company “needs good relationships with carriers to drive the adoption of Windows Mobile,” New York-based Chaplin said in a note to investors. “This will discourage Microsoft from pushing a disruptive business model with Skype.”

Brenda Raney, a Verizon Wireless spokeswoman, and Fletcher Cook, an AT&T spokesman, declined to comment.

Microsoft is likely to integrate Skype into software for tablet computers as well as mobile phones, said Colin Gillis, an analyst with BGC Partners LP in New York. Skype, with 170 million active users, will help boost the popularity of Windows- powered devices, he said.

Big Knock
“What’s the big knock on Microsoft right now? PCs are going to be displaced, tablets are going to take over the world,” Gillis said in an interview. “Throw Skype into this, that’s going to give them a unique edge.”

If Internet-calling technologies gain in popularity on mobile devices, wireless operators may respond by changing prices. Carriers may raise the price of using their networks by boosting the cost of data plans, Moffett said.

“The simplest thing will be new pricing plans where they will shift more of the price burden onto data plans to insulate them,” Moffett said. “There’s a clear vision in the technology community that voice and text aren’t businesses, they’re applications.”

Microsoft Corp. agreed to buy Internet phone company Skype Technologies SA for $8.5 billion in cash—the most aggressive move yet by Microsoft to play in the increasingly converged worlds of communication, information and entertainment.

.”Skype is a phenomenal service that is loved by millions of people around the world,” said Microsoft Chief Executive Steve Ballmer in a statement announcing the deal Tuesday. “Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.”

Skype will become a new business division within Microsoft, and Skype Chief Executive Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Mr. Ballmer.

Buying Skype—a service that links users via Internet-based telephony and video—gives Microsoft a recognized brand name on the Internet at a time when it is struggling to get more traction in the consumer market.

Microsoft has invested heavily in marketing and improving the technology of its Bing search engine. While it has made some market share gains over the past year, Google Inc. still dominates the search market with more than 65% of U.S. searches going through its site.

About 170 million people log in to Skype’s services every month, though not all of them make calls. Skype users made 207 billion minutes of voice and video calls last year. Microsoft said it will marry Skype’s functions to its Xbox and Kinect game consoles, Outlook email program and Windows smartphones. The company said it will continue to support Skype on other software platforms.

Microsoft’s chief executive, Steve Ballmer, sees the Internet as a key battleground for the company.
Microsoft, led by its CEO, Steve Ballmer, would be Skype’s fourth owner in eight years.

2003: Skype founded by two software developers, grows to 663 million registered users (8.8 million paying users) by 2011.
2005: EBay buys Skype for $2.6 billion in cash and stock.
2009: EBay sells about 70% to private investors in a deal valuing Skype at $2.75 billion.
2011: Microsoft nears almost $8 billion deal to buy Skype, which posted revenue of $860 million and a $7 million loss in 2010.

The Skype deal ranks as the biggest acquisition in the 36-year history of Microsoft, a company that traditionally has shied away from large deals. In 2007, Microsoft paid approximately $6 billion to acquire online advertising firm aQuantive Inc. Many current and former Microsoft executives believe Microsoft significantly overpaid for that deal. But they are also relieved that Microsoft gave up on an unsolicited $48 billion offer for Yahoo Inc. nearly three years ago. Yahoo is valued at half that sum today.

Mr. Ballmer, though, sees the Internet as an essential battleground for Microsoft, a company that still makes the vast bulk of its profits from Windows and Office software systems. Investors have become increasingly concerned about Microsoft’s ability to squeeze continued growth out of those businesses, as rival technologies from Apple Inc., Google and others put more pressure on profits.

The division behind Microsoft’s hugely lucrative Office suite of applications also makes a product, known as Lync, which ties together email, instant messaging and voice communications into a single application. Skype could strengthen that offering.

The deal shows how far Skype has come since it was launched in 2003 by Niklas Zennstrom and Janus Friis, two men who had created a file-sharing technology called Kazaa that became widely associated with music piracy. While Skype was initially popular with techies, it increasingly worked its way into the mainstream by offering free or cheap phone calls which were especially appealing to international callers.

When eBay Inc. purchased the company in 2005 for $2.6 billion in cash and stock, Skype was regarded as something of an experiment in which eBay’s buyers and sellers would use the service to communicate about potential transactions.

.The experiment faltered, and eBay gave up on Skype in 2009,selling a 70% stake to a group of technology investors including Silver Lake Partners, venture capital firms Index Ventures and Andreessen Horowitz, and the Canada Pension Plan Investment Board, who will make a handsome return on the Microsoft transaction.

Goldman Sachs Group Inc. and J.P.Morgan Chase & Co. advised Skype on the deal, according to people familiar with the matter. Microsoft isn’t using any financial advisers for the deal, the people added.

The agreement was approved by the boards of Microsoft and Skype and is subject to regulatory approvals.

For all its promise, Skype has had a mixed history as an operating business. It has produced little net profit in the eight years since it was founded. Profits continue to remain elusive as the company expands its business world-wide. Last year the company posted revenue of $860 million and $264 million in operating profits, but still had a loss of $7 million. The company had $686 million in long-term debt as of Dec. 31.

Skype uses a technology called voice over Internet protocol, which treats calls as data like email messages and routes them over the Internet, rather than a traditional phone network. Skype’s software, which can be downloaded free, allows users to call other Skype users on computers or certain cellphones for free. Skype users can also call land lines for a fee and conduct video calls.

Skype could play a role in Microsoft’s effort to turn around its fortunes in the mobile-phone market, an area where it has lagged badly behind rivals Apple and Google. The company last year launched a new operating system for mobile phones known as Windows Phone 7 that has been well reviewed by technology critics but hasn’t yet meaningfully improved Microsoft’s market share.

.Microsoft will likely need to tread carefully, though, in integrating Skype into its mobile software because of the potential for pushback from wireless carriers, whose support Microsoft badly needs. Skype could give consumers a way to make cheap phone calls over the Internet from mobile phones, without paying higher rates to the carriers.

Last August, Skype filed documents to go public but put its IPO plans on hold after bringing in Mr. Bates. Skype had expected to raise close to $1 billion through its IPO, people familiar with the matter said at the time. At the same time, the Luxembourg-based company entertained conversations in the past with potential buyers and joint-venture partners, including Facebook Inc., Google and Cisco Systems Inc., according to other people familiar with the matter. Skype had sought between $5 billion and $6 billion to sell itself, they added. The blog GigaOm earlier reported news of Microsoft’s interest in Skype.

Microsoft (MSFT) has delivered 1.5 million downloads of a tool kit to make applications for Windows Phone 7, a sign the operating system may be winning over developers even as it gains traction slowly with consumers.

About 36,000 developers have registered with the company, Microsoft said in a blog posting Mar. 31. A total of 11,500 apps are available and customers on average download 12 a month.

Microsoft needs to marshal developers’ efforts to have a shot at retaking market share lost to Apple’s (AAPL) iPhone and handsets running Google’s (GOOG) Android software. Microsoft shipped 2 million Windows Phone 7 units last quarter, a number that analysts deemed disappointing. Delays in a software update beset the company this month, and developers and customers said Microsoft failed to provide enough details about the holdup.

“It’s a long-term process to get more phones out there and it’s also a long-term process to get out updates in a timely fashion, but the developer side is one of the bright spots for this platform,” said Al Hilwa, an analyst at market research firm IDC. “They are obviously not at the same scale as Android or Apple iOS, but factoring for the maturity of the Windows Phone platform, they’re doing well.”

Apple has more than 350,000 apps available, and Android apps top 150,000. Microsoft’s software could become the No. 2 mobile operating system behind Android in 2015, Framingham (Mass.)-based IDC predicted this week.

Developer Enthusiasm
Microsoft, based in Redmond, Wash., is adding 1,200 new registrations for Windows Phone developers a week, said Brandon Watson, the division’s senior director of developer experience. Downloads of the tool kit also jumped last month after Microsoft announced an agreement that will put Windows Phone software in Nokia (NOK) handsets, he said in an interview. “It’s a long game,” Watson said. “We’ve got great momentum and a great story but we need to keep delivering. To count us out now, we tell people that they do that at their own folly.”

To keep developers happy, Microsoft needs to make sure there are enough phones to boost the revenue that apps can bring in, Hilwa said. The Nokia deal gives them a “good shot” at doing that, said Sam Altman, chief executive officer of Loopt, whose app for locating friends is available for Windows Phone, Android, and Apple’s iOS.

The Windows software, which features tiles on the main screen that update with new information, lets Altman’s company do things it can’t on rival operating systems. For example, Loopt users on Windows Phone can see whether a friend is nearby on that main-screen tile without having to open the application, he said. “We’re excited about where the platform is going,” he said. “The problem is you occasionally hear or see a blog post saying ‘I made $1 million last week on the Android app store.’ I haven’t seen that for Windows yet.”

Relationship in Progress
Watson acknowledged the delays and lack of information around the rollout of the Windows Phone update—which adds features such as the ability to copy and paste—upset some developers, who want more details on the software road map, he said. “To date we haven’t done a great job,” Watson said. “We are working like hell to make sure we are doing a better job.”

Watson also reiterated that Microsoft will release a new version of the Windows Phone software later this year and that new phone models with the operating system will go on sale in 2011. Existing Windows Phone customers will be able to update their older phones with the new software, he said.

One feature in the works will let users buy merchandise with a flick of the handset at a checkout counter, two people familiar with the plans said this week. In January, Microsoft said it had shipped 2 million licenses to use Windows Phone 7 in handsets. Kevin Burden, an analyst at ABI Research, said at the time that number was less than he predicted.

Microsoft’s chief technical officer and strategic leader Craig Mundie told an audience in Australia that he’s not sure if tablets are here to stay.

It’s another example of Microsoft leadership’s blind spot (or perhaps willful denial) about the fastest growing new category in personal computing, which is starting to eat into the long-held Windows monopoly.

Microsoft is working hard on making Windows 8, the next version, have better support for tablets. But that operating system probably won’t be out until late 2012 at the earliest, giving Apple more than two years to build a head start. Not to mention the crop of tablets launching this year, including RIM’s PlayBook, HP’s TouchPad, and all the tablets based on Google’s Android. None of which run Windows.

The Sydney Morning Herald reports that Mundie is more bullish on smartphones, which he thinks will become the “most personal computer.”

He drew a distinction between mobile devices like smartphones — which are used when you’re literally in transit moving — and portable devices, like notebooks, which you have to stop and set down before you can work with them.

He called the iPad an “in between” device and said “Personally I don’t know whether I believe that space will be a persistent one or not.”

Later he elaborated that tablets “are not very good for creating things” and are mainly being used for consumption, not creation of content. “I don’t know whether consumption things will remain a category by themselves or not,” he added.

Apparently he missed Apple’s introduction of iMovie and Garage Band for the iPad 2 earlier this month.

Steve Jobs agrees with Mundie on one point — the iPad is not a PC. It’s part of the post-PC world. And so far, that world seems to be growing at the expense of the traditional PC market.

March 30 (Bloomberg) — Microsoft Corp. is working on a version of its Windows Phone software that will let users buy merchandise with a flick of the handset at a checkout counter, two people familiar with the plans said.

Microsoft plans to include mobile-payment technology in new versions of its operating system for smartphones as part of an effort to narrow Google Inc.’s lead in handset software, said the people, who asked to remain anonymous because the features aren’t public. The first devices boasting these features may be released this year, the people said.

The company joins a growing list of software providers aiming to benefit from rising demand for ways to purchase products and services on the go. Mobile payments may be used in $245 billion in transactions in 2014, up from $32 billion in 2010, according to Gartner Inc. Chief Executive Officer Steve Ballmer is under pressure to regain mobile-software market share lost to Apple Inc., maker of the iPhone, and Google’s Android.

The phones running Microsoft’s new software will be based on so-called Near Field Communication, which lets devices communicate wirelessly with objects immediately nearby. NFC technology enables payments and also lets consumers use a handset for other tasks, such as redeeming coupons and loyalty points at local merchants.

Widening Support

Mobile-software providers are weaving NFC support into their operating systems. Google has made NFC part of Android for mobile devices and in December introduced the first Android phone with NFC capabilities. Apple is said to be working on adding the feature to its mobile operating system, people familiar with the company’s plans said in January.

Having NFC features may be crucial to Microsoft’s efforts to boost shrinking market share. Redmond, Washington-based Microsoft is expected to hold about 5.5 percent of the mobile operating system market this year, compared with 39.5 percent for Android, 15.7 percent for Apple’s IOS, and 14.9 percent for Research In Motion Ltd.’s BlackBerry, according to IDC, a consulting firm in Framingham, Massachusetts.

Microsoft is likely to get support in its mobile payments effort from Nokia Oyj, the handset maker that recently said it will use Windows Phone software on its devices. Nokia said it will make NFC a standard feature of its 2011 smartphones based on the Symbian operating system.

The number of phones with NFC will double in 2012, from 35 million shipped in 2011, consultant ABI Research estimated. In 2014, 340 million global wireless users will use mobile payments, according to research firm Gartner.

Microsoft holds 14 patents referencing NFC, most recent of them awarded on March 22, according to the U.S. Patent Office.

No matter how closely the two match their hardware and software efforts, they can’t compete against Apple’s total, integrated package

Early Friday morning, Microsoft and Nokia announced a partnership that will see Windows Phone 7 become the primary platform for Nokia’s high-end smartphones. It’s a bold move that will help solve Windows Phone 7′’s small market-share problem in one fell swoop if it goes as planned. But is it enough seriously to challenge Apple, arguably the two companies’ most entrenched competition?

In a word, no. Bobbie Johnson argued in his piece that just combining two companies with flawed strategies does not necessarily mean that each will shore up the other’s weaknesses. That’s true, and it’s the weaknesses of both that left the path open for Apple to gain and keep its significant advantage in the high-end smartphone market. Here are the core advantages Apple’s mobile products have that Nokia and Microsoft playing nice simply won’t solve.

No Developers, No Dice
Windows Phone 7 has had some success attracting developers in the short term, but there are indications this might have had more to do with grand gestures and publicity stunts, and less to do with the long-term viability of the OS app platform.In the very early days, prior to launch, Microsoft was said to be offering cash to potential developers to get them on board.And even as recently as last November, some were claiming Microsoft is offering comped devices to make WP7 development more appealing.

Despite a promising start, it’s not all roses for WP7 development. One successful (top 50) developer for the platform recently revealed his sales figures, and they were dismal. Revenue from the sale of his app was barely enough to keep the lights on, let alone build a business on.

Of course, Nokia, as the biggest smartphone maker in the world, should have a healthy developer pool to draw from. It should, but it doesn’t. Even before the move today, developers had been frustrated with Nokia’s development platform efforts.Now that the company is basically telling devs they should throw out what they’ve learned and switch to a completely different set of tools (since Nokia’s cross-platform Qt development framework isn’t part of its WP7 strategy), I wouldn’t be surprised if most just throw up their hands and move to a stable model with a proven ability to generate revenue, like iOS.

Yawning Chasm
The app gap is often cited as a prime reason behind Apple’s success, but it bears repeating. Currently, iOS has almost 350,000 active apps available to consumers through the App Store. Windows Phone 7 has about 8,000 apps. Even with a growth rate of 125 apps each day, Apple’s advantage at this point may be insurmountable. Each Apple iOS device averages more than 60 downloaded apps, and the App Store remains the top destination by a huge margin in time spent browsing app marketplaces by consumers.

In making users feel like they have a financial stake in a mobile platform, little else compares with apps. Changing platforms means buying all new apps, so if a platform is good at selling software, it’s more likely to lead to subscriber lock-in or loyalty. Apple has the added advantage of offering multiple, nonphone platforms that also use and encourage the sale of apps (iPod touch and iPad), which adds to the perceived value of software purchases for consumers. Try as it might, Windows can’t gain traction in the personal media player market, and WP7 doesn’t seem poised to make the jump to tablets soon.

Holistic Is Hard to Beat
Under the new arrangement between the two companies, Nokia builds hardware and Microsoft builds software. Apple builds both. The advantage of having both hardware and software teams constantly working together to deliver the best possible consumer experience as a total product cannot be overemphasized. Any partnership between two companies, no matter how closely it may resemble an actual merger, isn’t one.Corporate cultures, offices, and ultimate goals remain distinct.In this case, that’s especially true, since Microsoft announced this was a nonexclusive deal, and it would still be working with other hardware partners (although their history of doing so isn’t exactly encouraging).

Apple’s ability to pair the hardware and software development sides of making a smartphone not only allows it to win the UX game; it also advantageously affects cost and the pace of breakthroughs and advances—and downplays the importance of internal specifications. It’s why an iPhone that’s almost a year old can still compete in real-world performance with just-released hardware from competitors, and it’s a big part of why Apple enjoys such high margins on the sale of each piece of hardware it makes.

Because Nokia and Microsoft aren’t starting from scratch, the partnership will most likely bear all the earmarks of success, at least from the outset. If they do it right, we’ll see the simultaneous release of a bunch of shiny new handsets sporting WP7, and these will be decently well-received by Nokia’s existing customers. But without significant changes from either camp in the way they think about how to make phones and software, Apple doesn’t have to worry about being knocked off its rock just yet.