Microsoft admits mobile missteps, but fights on

Software giant tells financial analysts it lacks a consumer angle in its mobile campaign

Microsoft doesn't have a business model problem in the mobile market, but its phones are skewed toward business users at the expense of consumers and are not as modern as they need to be, Robbie Bach, president of Microsoft's entertainment and devices division, told financial analysts Thursday at the Consumer Electronics Show.

Those realities will present Microsoft with some specific challenges in the mobile area, he said, where Apple and Google are setting a new pace. But in established Microsoft fashion, Bach is unbowed and optimistic despite the company's weak mobile showing to date.

He says the three-pronged assault that will fuel Microsoft is the new Windows Mobile 7 operating system, changes in marketing that will have Microsoft closer to the front lines, and most important, Microsoft's online services strategy around three screens and a cloud.

"We are very focused and confident in the work we are doing right now," he said, referring to Windows Mobile 7. "While I don't think if you looked across the past two years of what we have brought to market that we have executed as well as we would have liked, but I am quite optimistic with the new team we have, I am quite optimistic with the new work we are doing… and I feel comfortable we are going to be in the right place."

Microsoft is up against the poorly received Windows Mobile 6.5 it released last year, and the expectations of Windows Mobile 7, which it plans to highlight next month at the Mobile World Congress and in March at its annual Mix Conference. Shipment is expected this year.

That operating system is what Microsoft will yield to fight the dominance of Apple's iPhone and Research in Motion's BlackBerry and the hype around the recently unveiled Google Nexus One and the entire line of Android-based and open source Linux devices.

Bach told financial analysts to have high expectations for Windows Mobile 7.

"I have had the pleasure of seeing [Windows Mobile 7], looking at it and playing with it. I am certainly confident that we are going to see it as something that is differentiated and sets the bar forward, not in an evolutionary way from where we are today, but something that looks, feels and acts and performs completely different."

Bach, however, did not back up that endorsement with any details.

He also said Microsoft was evaluating how it will work in marketing saying mobile operator partners and OEMs would do the majority of the go-to-market work, but said Microsoft would be more involved.

"That is an additional muscle we have to build, that is why we launched the Windows phone brand; we have actually had good success without spending a ton of money in raising awareness on Windows phones in the U.S., and a couple of European markets," he said.

The goal going forward will be to accelerate those efforts.

Bach said nothing about a Microsoft-branded phone called Pink that has been grinding through the rumor mill. He did, however, take some pokes at Apple for controlling both mobile hardware and the software, and at Google for competing with partners by releasing a Google-branded phone. Bach seemed to be hinting that Microsoft won't follow either route.And he emphasized Microsoft's belief that online services will ultimately make the difference in the company's success or the lack thereof on the mobile platform.

"I [look at] the services opportunity, the search opportunity, I think there are other opportunities we can build on top of that, but those are sort of the ante to be a serious competitor," he said.

The belief, Bach said, is that over time users will blur the lines between their PCs, TVs and devices.

"The service delivery is going to be critical that is why I keep talking about cloud delivery, what we are doing with Windows Live, what we are doing with Xbox Live, why Azure is so important to us because it really will enable us to reach all of those different screens."

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