Watching Microsoft twist in the wind as the iPhone steals its thunder in the smart phone market is interesting and, I think, instructive. As was the case with the digital media market, where Apple swept in with its iPod devices and iTunes software, Microsoft has an established presence in this market, dating in this case back to the first version of Windows CE from the mid-1990s. And as with that other market, Microsoft is being left behind in the smart phone market, first from a perception standpoint. I can only imagine that an actual sales deficit will follow. Then what?

Before that happens, we're left with the perception bit. And Microsoft is failing badly here. Despite the fact that Windows Mobile actually outsells RIM's Blackberry, and despite the fact that Microsoft obviously invented the notion of Exchange/device connectivity, every single article I read about Apple's moves into the enterprise market compares the iPhone not to Windows Mobile but to Blackberry. It's amazing.

Microsoft's response to this threat has been abysmal. On the other hand, at least the company is responding. In the year since Apple first announced the iPhone, there's been a sudden flurry of activity in the Windows Mobile world as Microsoft scrambles to embrace iPhone-like UIs and technologies in its own products. But Windows Mobile is hobbled by a number of factors, not the least of which is the gap between the software itself and the broken ecosystem (especially in the US) that is responsible for incorporating that software into devices and selling them to end users. The smart phone market isn't like the PC market, and Microsoft can't easily offer updates to existing Windows Mobile customers. Sometimes it can't do so at all.

Since we're still a ways away from the supposed major release that will be Windows Mobile 7.0 (which one imagines has been completely redefined in this post-iPhone world), Microsoft is forced to treat us to more incremental updates in the meantime. Windows Mobile 6.1 was announced today, for example and Microsoft's partners will actually ship WM6.1 hardware as soon as mid-2008 (wow). Meanwhile, the Windows Mobile blog has been forced to tantalize Windows Mobile fans (and I believe there are some) with tidbits about future software promises like Zune + Windows Mobile and a friendly "Neo" UI that is apparently available on exactly one Windows Mobile device from exactly one US wireless carrier. Can you feel the momentum, people?

Lost amid all this, I think, is another indication of Microsoft's inability to compete effectively in this market. They're creating deceptive advertisements that make Windows Mobile look better than it really is. Here are two example "screenshots" of Windows Mobile 6, taken from the Microsoft Web site. See if you can spot the problem:

If you guessed, Windows Mobile doesn't actually look anything like that, then you guessed correctly. Looking at these images, you would be forgiven for believing that Windows Mobile is visually identical to Windows Vista, with amazing translucency effects and glass window borders. The truth is, Windows Mobile 6 looks a lot like Windows Mobile 5, but with a static skin applied to it that is vaguely Vista-esque. There's no translucency in the UI and there's certainly no glass window effects. Dialogs and balloon windows in Windows Mobile 6 are as flat and opaque as ever, sorry.

And here's what Excel Mobile really looks like (image courtesy of Clinton Fitch):

Compare that to the second shot above. No offense, but they aren't even close. The top one is beautiful, but fake. The bottom one is ugly, but real.

Don't get me wrong, I haven't completely given up on Windows Mobile. But as is the case with the Zune, the Xbox 360, and Microsoft's other none-core efforts, I have to wonder what the heck is going on. I know there are smart people over there, good people. I wish them luck, I really do.

PS: Windows Mobile has a Facebook page. Maybe they are cool.  :)