Microsoft (MSFT) has finally made its move to catch up with its chief mobile software rivals by introducing Windows Phone 7, its newest operating system for smartphones. The software giant made the official announcement on Monday at the Mobile World Congress in Barcelona, Spain.New handsets that use Windows Phone 7, initially available in the U.S. from AT&T (T), Verizon Wireless (VZ) and Sprint Nextel (S), feature both touch-screen controls and a radically redesigned interface that takes cues from Microsoft's popular Zune digital music player.

The new smartphone OS is a wholly different product than the previous generation of Microsoft mobile software. "This phone market is highly competitive, highly dynamic and super-exciting. We needed and wanted to do some things that are out of the box, clearly differentiated from our past and clearly differentiated from the market," said Microsoft CEO, Steve Ballmer speaking at the Mobile World Congress.

Falling Behind

Reinventing its mobile software experience is crucial for Microsoft. Following the company's early success in creating a sophisticated mobile phone OS, its share of the smartphone OS market has slipped to just 18%, according to analysis by the market research firm, comScore. That places Microsoft far behind market leaders, Research In Motion (RIMM) and Apple (AAPL), which have 41.6% and 25.3% of the market, respectively. Google's (GOOG) new Android has also come seemingly out of nowhere to start taking market share, already jumping from 2.5% in 2009's third quarter to 5.2% in the fourth quarter.

That flagging popularity has mostly cut Microsoft out of a rapidly growing mobile market, in which smartphone shipments are expected to more than double from 2009 to 2013, to 391.3 million units, according to industry research firm IDC.

The new Windows Phone 7 software is an effort to deliver a mobile experience that's "modern and takes advantage of people's complex lives to deliver something that's unique and individual," said Joe Belfiore, vice president of Microsoft's Windows Phone product line during its introduction in Barcelona.

The phone's home screen revolves around "live tiles" that feature content such as photos from social networks and email, and dynamically arranges itself automatically or allows for manual customization.

Unifying Software and Hardware Specs

In recognition of the ever-blurring lines between personal and business use of smartphones, Microsoft has integrated email, calendar and contact data from both Microsoft Exchange email servers and popular Web email services. It also folds personal updates from social networking services into an integrated presentation on the phone, thus melding some of the functionality currently handled by separate applications on leading smartphones, like RIM's BlackBerry.

Microsoft is also using the new OS as part of an effort to unify, to some degree, the hardware specifications for Windows phones, which have varied widely in the past, leaving some underpowered. "We really wanted to lead and take much more complete accountability than we had in previous versions [of Window's phones] for the end-user experience," said Ballmer.

In addition to its new core mobile OS, the company is introducing its own "Windows Marketplace for Mobile" to try keeping pace with the proliferation of online stores for mobile applications. It will also offer a new free service, dubbed My Phone, which will automatically synchronize the handset's content, including contacts, appointments, text messages and photos, to a password-protected website.

Microsoft expects its partners to deliver more than 30 new phones in more than 20 countries in a variety of styles and prices by the end of 2010.

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