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The smart phone business resembles a war field. There are makeshift alliances, shifting allegiances, victories and routs ... above all, a constantly changing landscape with new technologies enticing a growing proportion of consumers to make the switch to the latest and greatest. As companies jostle for advantage, attempting to capture as much of this exploding business as possible, it seems as if everything is in question and nothing is impossible.

Within just the last month, we've seen:

Amid the turmoil, Microsoft's (NASDAQ:MSFT) mobile prospects have been looking stronger and stronger. Although Windows Phone activations are paltry, the Redmond behemoth has been pursuing a dual-track strategy of leveraging its patent portfolio to create cashflow while developing an OS roadmap aimed at making Microsoft-powered handsets competitive and compelling.

The first leg of this effort involves an iterative update to Windows Phone, version 7.5 code-named Mango, before the critical holiday season. Originally released to pleasantly surprised ("Is this made by Microsoft?") reviews, version 7 suffered from functionality issues. Redmond engineers seem to have listened closely, and Mango previews reveal little in the way of cosmetic changes but significant underlying improvements leading to a much smoother user experience. From Endgadget's popular piece:

Wonder of wonders, miracle of miracles, Windows Phone is developing into the OS we've been asking for since we first used it last year. By adding in crucial elements like multitasking, groups, social network integration and more, it's starting to play catch-up to the other big names in mobile. Not overcome -- catch-up. Mango hasn't shown us anything truly groundbreaking yet. At least this platform, still in its youth, is stepping onto the same playing field as hard hitters like iOS and Android, though. One thing that surprised us was how few bugs or choppy effects were present in this build, an impressive feat considering we're still a few months away from completion. Overall, we've come away with a positive outlook on Windows Phone's newest iteration, and are very eager to see the finished result.

The second leg is the upcoming Windows 8 Phone, aiming to shift Microsoft's offerings beyond "me too" to a different, streamlined and innovative experience apart from Android and iOS. What's especially interesting about this still largely unknown project, tentatively expected in fall of 2012, are hints that the mobile version of the OS will share its kernel with the PC version, enabling cross-platform (PC/mobile/enterprise) to a degree and with an ease so far not available.

Meanwhile, Microsoft is looking to collect on Android's good fortunes. Already cashing in from HTC's sales (a reported $5 per device), Redmond has been on a patent-deal tear, estabilishing ties with a slew of smaller companies and now appears to have Samsung in its crosshairs. While none of the above does much to assuage the teeth-gnashing of quasi-professional Microsoft haters, it represents a valid and highly profitable strategy.

My recent article on Microsoft's undervaluation woes singled out the much-disliked CEO, Steve Ballmer, as a drag on the company; similar SA pieces have also focused on the disconnect between remarkable financial results and middling equity performance. But another item of faith among Microsoft bears is that it has missed the smart phone boat, confirming a long-term trend of slowly fading into obsolescence as personal computing gets cannibalized by hand-held devices.

I believe this to be wrong about the existing Office and Windows cash cows, but more importantly, I believe the ongoing developments described in this article indicate that far from remaining complacent, Microsoft is positioning itself to capitalize on the mobility revolution no matter which way market share breaks. Consider the following:

  • Microsoft profits from monetization of patent portfolio from Android devices, which are surging in popularity.
  • Microsoft profits from strategic partnerships with successful handheld-makers, including HTC and Nokia.
  • Microsoft has little to lose and everything to gain with its next Windows Phone projects.

It's a win/win/win situation rarely encountered in such a volatile and competitive environment. With continued whispers about Ballmer's retirement as a potential catalyst, Microsoft's current jostling in the mobile space represents yet another reason to go long.

Source: Microsoft Hedges Mobility Bets in a Fluid Marketplace