Windows Phone 7 Shows Why RIM, Nokia Need a Fresh Start

Microsoft (s msft) today introduced its new Windows Phone 7 mobile platform in a nearly hour-long demonstration of the operating system by Microsoft Director of Windows Phone Program Management, Joe Belfiore. With the new platform, Microsoft becomes the third company in as many months to unveil a new mobile phone operating system, joining both Research In Motion (s rimm) and Nokia (s nok). Unlike the latter two companies, however, one aspect quickly became clear during Belfiore’s presentation: By starting over from scratch, Microsoft has given itself a better chance than its peers to reinvent its place in the smartphone market.

Time for a redesign. As I watched the livestream of the Windows Phone 7 event, I was taken by the design thought put into the new platform, something I can’t ever recall saying about Microsoft’s earlier attempts at mobile. The interface is more unique than any we’ve seen since the original iPhone, with tiles and hubs instead of icons and apps. Dare I say it: The Windows Phone  7 user interface is actually a feature and one that will get consumers interested in Microsoft-powered handhelds. A panoramic navigation method both uses limited screen space intelligently and doesn’t force users into deep, cascading menus. The integration with Microsoft services appears top-notch, ranging from OneNote in the cloud to Zune for media, Xbox Live for gaming and Bing for navigation and search.

Power Point mobile brings sexy back. Microsoft ran the risk of alienating its existing user base when it announced earlier this year that the old Windows Mobile platform was in the past and that Windows Phone 7 was the future. Indeed, none of the tens of thousands of existing Windows Mobile applications will run on the new Windows Phone 7 devices.

Instead, apps must be ported or re-written using Microsoft’s Silverlight, .NET Compact or XNA frameworks, and Microsoft itself has already done just that with its mobile Office suite; Belfiore demonstrated a slick Power Point presentation on stage this morning. (Did I actually just give the oft-maligned slide decks a shout-out?) Although some are bemoaning the lack of basic features such as cut-and-paste — Belfiore said Windows Phone 7 will gain that in early 2011 — the real challenge before Microsoft now is in getting developers to build applications for the new smartphones. Perhaps that’s why Microsoft is presenting the illusion of developers jumping on board, even though they haven’t committed to do so just yet. But why are apps even an issue?

[inline-pro-content align=”right”]Do apps sell phones, or do phones sell apps? Palm’s webOS (s hpq) is the poster child to illustrate the potentially vicious chicken-and-egg scenario between mobile applications and handset adoption. WebOS arguably offers the best mobile user interface, but the catalog of quality applications always lagged behind those from competitors. In today’s app economy, consumers are looking for devices that can be easily extended through software, games and utilities. Although there were other key reasons why webOS devices didn’t gain large chunks of market share, a relative lack of apps by comparison to iOS and Android phones is a contributing factor.

While some say market share of smartphones is irrelevant, I’ve previously argued that such sales figures matter greatly to developers. If devices aren’t selling to large numbers of consumers, why should a programmer build apps for a small target audience? Mobile app developers are the new king makers; if developers don’t build apps, the catalog doesn’t expand rapidly, which causes consumers to choose another device, continuing the spiral of death for a platform.

Nokia and RIM are stuck; for now. While the path ahead may be rocky for Microsoft, the company is treading in a different direction from RIM and Nokia, who are both facing the same pressure from Apple and Google. Take a look at RIM’s new BlackBerry 6 or Nokia’s Symbian^3 platforms and you’ll notice a key difference: Both operating systems are constrained by current user bases. Neither company took Microsoft’s approach by radically redesigning their smartphone user interfaces. Instead, both BlackBerry OS 6 and Symbian^3 are targeted as an evolutionary update or a refresh for existing customers, providing a familiar interface but adding new bells and whistles or better touchscreen integration to compete with the status quo. As a result, both are more of the same for current users and less likely to attract new customers.

Both Nokia and RIM are thinking of the future, however. Nokia is readying MeeGo-powered devices, possibly by the end of this year, even though a key executive in the MeeGo area recently left the company. Nokia expects to compete with the high-end smartphone and device market with MeeGo, a Linux-based platform created by the merger of Nokia’s Maemo and Intel’s (s intc) Moblin Project earlier this year. RIM has already tapped the QNX platform, which it acquired this past April, for its 2011 entry into the tablet space. If successful, the company could leverage QNX in future smartphones, too.

Microsoft has to go “all in.” Windows Phone 7 comes at a time when Microsoft is nearing irrelevance in the fast-growing smartphone market, a turn around from the early days of smart mobile devices. In July of 2006, for example, research firm Canalys estimated Microsoft’s market share at 15 percent and growing (PDF) as compared to just 6 percent held by Research In Motion’s BlackBerry devices. Fast forward to the present day and RIM is fighting for its life against iOS and Android devices while you can count Microsoft’s share using the fingers of just one hand.

The combination of complacency with Windows Mobile and the rise of intuitive touch user interfaces from competitors such as Apple and Google have left Microsoft as an “also-ran” in the smartphone race. However, one has to give credit where it’s due. By scrapping Windows Mobile and building the new Wind0ws Phone 7 system from the ground up, Microsoft’s risky bet is likely to pay off and help re-establish the company in smartphones if developers show up.

Related content from GigaOM Pro (sub req’d):