Windows Mobile's decline may be terminal, but Microsoft has plenty of room for development in the mobile space.
Microsoft will release the next incremental upgrade of the Windows Mobile platform this autumn, but for many analysts and experts it seems like the new Windows Mobile OS is virtually dead on arrival.
Microsoft has done little to raise the bar for mobile devices, and often seems to fall short even in just trying to catch up to competing products such as the Apple iPhone 3GS.
Microsoft needs to develop tools that work on competing mobile platforms to ensure that no matter who wins the mobile device war Microsoft will come out on top for the server and messaging infrastructure that those devices connect to.
Microsoft has stated that it has no intentions of dropping out of the mobile operating system arena, but some analysts see things differently.
Gartner analyst Nick Jones noted in a blog post that Windows Mobile is "losing market share; it dropped to #3 in the smartphone market in Q2 2008, falling behind arch-rivals RIM".
Jones goes on to predict that Windows Mobile 6.5 and Windows Mobile 7 are "Microsoft's last chance to succeed in this market".
Microsoft has been angling for the mobile device cool factor to try and capture some of that same level of fanaticism enjoyed by the Apple iPhone.
Like other platforms, Microsoft is introducing an app store copycat and Microsoft has even developed guidelines for porting Apple iPhone apps over to Windows Mobile. Microsoft is actively courting iPhone app developers to help build up the Windows Mobile portfolio of apps.
That is one approach to trying to capture mobile device market share, but Microsoft would serve itself even better by ensuring it retains the backend server market.
Rather than convincing developers of other platforms to defect to creating apps for Windows Mobile, Microsoft should expand its own development and begin to build tools and utilities for other mobile platforms.
It can continue to duke it out in the mobile device market, but it should also hedge its bets and expand its sphere of influence by ensuring that users can access Microsoft Exchange, Office Communications Server, and other Microsoft back-end systems regardless of the mobile device they are using.
The economy as a whole was down, and it was an off year for Microsoft server products - most having had major releases in 2007 and just coasting on incremental upgrades. Even so, Microsoft's server and tools division accounted for more than a quarter of its revenue for fiscal year 2009.
2010 holds even more promise as the next wave of server and application products, including Exchange, Sharepoint, Office Communications Server, and the Microsoft Office suite of productivity applications all have major new releases scheduled.
Make no mistake, Windows Mobile 6.5 makes some significant improvements in performance and user experience from the current version of Windows Mobile.
However, in terms of the overall mobile device war there is little that is truly innovative about it. Microsoft is more or less playing catch up and implementing their own version of features made popular by Apple, Blackberry, Palm, and others.
In the end, many users may be reluctant to upgrade their phone to get Windows Mobile 6.5 when they can just hold out another 6 months or so and get Windows Mobile 7. But, Microsoft can cement its position on the server side and create a whole new audience of Exchange and Microsoft Unified Communications users by making sure client applications exist for competing mobile device platforms.
Tony Bradley blogs for PCWorld.com