Windows Phone 7 Is Impressive, But 3 Challenges Remain for Microsoft

Microsoft (s msft) unveiled the long-awaited upgrade to its venerable mobile operating system this morning, and — so far, at least — the results are pretty impressive. The company has finally scrapped the cumbersome look and feel of Windows Mobile in favor of a more intuitive, streamlined user interface, and — much like HTC — is focusing on consumers by emphasizing the personalized nature of mobile phones in addition to productivity features. (See video below.)

Windows Phone 7 Series, as the new OS is dubbed, is built on the Zune HD interface and enables users to navigate the device via a series of integrated “hubs” (Office, pictures, games, music and video) and widgets. And Microsoft has wisely enlisted the help of industry heavyweights such as Qualcomm (s qcom) and AT&T (s t) to help it regain its lost relevance in the ultra-competitive smartphone space.

But producing a knockout mobile operating system won’t be enough to get back in the game, as Palm (s palm) can tell you. For Microsoft to challenge platforms like Android (s goog) and iPhone (s aapl), it will have to address these three primary challenges before its new devices come to market in the fourth quarter of 2010:

  • Build a better app store. Smartphone users already have the luxury of browsing through tens of thousands of apps in the Android Market or Apple’s App Store, so Microsoft will have to quickly find a way to build an impressive library of offerings for its new Phone 7 Series. CEO Steve Ballmer today quashed speculation that the company might make its OS freely available to developers, so the company must find other ways to attract the attention of developers who already have lots of attractive platforms on which to build their mobile apps.
  • Build a better brand. Forrester’s Charles S. Golvin noted this morning that 24 percent of Windows Mobile users in North America say their phone was made by Apple or RIM (s rimm), and more than one-third of European Windows Mobile users said Nokia (s nok) made their phone. And the Windows brand isn’t linked to phones that use the OS on any carrier’s web site, Golvin said. So Microsoft will have to leverage its partnerships and invest heavily in promoting its brand if Windows Phone 7 Series is to be a hit with consumers.
  • Understand the mobile web. Microsoft’s inability to become a major player on the Internet is well documented, and is a key reason the company has failed to connect with consumers. Apps are great, and Microsoft’s apparent progress in tearing down the siloed world of mobile apps to create a more integrated experience is impressive. (That progress was illustrated this morning by the company’s success in integrating Bing and social networking sites with the mobile experience.) If the overhauled OS is to find an audience, though, Microsoft must prove that it understands how consumers want to use the web while they’re on the phone. That will be a particularly difficult hurdle for a company that has always been about software — not consumer experiences.

It’s easy to get excited after a single demonstration, of course, and Windows Mobile will surely continue to lose market share before Windows Phone 7 comes to market late this year. Meanwhile, those competing platforms will only become more so in the coming months. And while Microsoft’s move to give network operators flexibility to tweak the OS is commendable, it runs the risk of carriers damaging the platform as they put their own stamp on it. But the smartphone space is a wide-open field, and Windows Phone 7 Series indicates that Redmond might finally be getting a clue. If it can continue to execute in the coming months, Microsoft may just find itself back in the game.

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Images and video courtesy Microsoft.