Microsoft announced the long-awaited details of its Windows Mobile 7 operating system at a press conference held today at the annual Mobile World Conference in Barcelona. Phones using the OS will be available in time for the 2010 holiday season, CEO Steve Ballmer said. Beyond the timing, three points particularly stood out in the 90-minute presentation by Ballmer and top mobile executives. First, Ballmer emphasized that with Windows Phone 7, Microsoft is taking on more accountability for user experience–a key complaint of many Windows Mobile users. Second, the “premier launch partner” for Windows 7 phones in the United States is none other than Apple iPhone partner AT&T. And third, and perhaps most intriguingly, the new mobile OS will offer full integration with Microsoft’s Xbox Live gaming platform.

Microsoft has been losing market share in the smart phone OS business, while operating systems more tailored to the mobile experience, such as Android and iPhone OS, have been gaining ground. The company is well aware of the problem; during an interview at CES 2010 in January, Robbie Bach, the president of Microsoft’s Entertainment and Devices Division, said, “I think the number one thing that we have to do on Windows Mobile going forward is about the experience people had with the phone itself. …[O]ur experience is very skewed towards business users, and it’s not as modern as it needs to be. And I’ll just be as straightforward as that.”

The OS that Microsoft unveiled Monday under the Windows Phone 7 series banner is geared to address the user experience complaints head-on. The company is dictating more integration between hardware and software than has been seen in any previous Windows Mobile device. In fact, Microsoft worked with Qualcomm to develop a new chip that will drive every Windows 7 phone, and for the first time, it will not allow mobile operators to create customized versions of the user interface. It has also dictated specific aspects of the device design, including minimum screen resolution, accelerometer and compass characteristics, and four-point multitouch-capable screens. In addition, all Windows 7 phones will have three buttons on the front: “start,” “search,” and “back.”

That said, phone makers and mobile service providers will still be able to offer an array of different hardware and services to customers. Windows 7 phones may have physical keyboards or not, or be different size, said Andy Lees, senior vice president of Microsoft’s Mobile Communications Business. “One size does not fit all,” he added. With this strategy, Microsoft seems to have chosen to walk a fine line between the Apple and Google approaches to mobile, embracing both Apple’s almost total control over user experience and Google’s efforts to quickly scale adoption by working with multiple partners.

Joe Belfiore, vice president of Windows Phone, demonstrated the series 7 OS running on prototype hardware live on stage. Belfiore is a veteran of designing user interfaces, having worked on the UIs for Windows 95, Windows XP, the Zune media player, and Windows Media Center. At the press conference, he said that his team attempted to design a user experience different from the PC metaphor for the new OS, once specific to the way people use smart phones that allows them to organize information and applications in a task-centric way.

Based solely on the on-stage demo, they appear to have succeeded. The large icons (“Live Tiles”) that appear on the phone’s start page organize tasks in an intuitive way, and users can customize the icons to center around either tasks (such as e-mailing, or a specific Web page) or people (linking directly from the start page to all the information available about a specific contact). And while Microsoft is definitely late to the contextual menu part, the links to various tasks and applications that Belfiore showed on different screens seemed both more intuitive and more thorough than many available in either iPhone or Android applications. The proof, of course, won’t be available for several months–and Apple and Google have a long time to improve their own mobile operating systems in the meantime.

A lot of features of Windows 7 Phones will be old hat to iPhone users; for instance, all series 7 phones will be Zune HD players, allowing users to play music and videos from their phones. Microsoft is also abandoning the Windows Mobile Device Center; Windows 7 Phones will sync to PCs through the Zune interface (iPhone/iTunes, anyone?).

One standout on the new mobile OS, however, is the “Hub” approach, which collects all applications related to a specific area in one place. For instance, the Music Hub allows users not only to play albums they have stored on the phone but also integrates third-party applications, giving users direct access, for instance, to their personalized Pandora stations while they’re already listening to a stored song.
In an effort to better integrate users’ personal lives with their business applications, Windows Phone 7 provides access not only to e-mail, appointments, and contacts from a corporate Outlook Exchange server, but also information from Web e-mail services such as Yahoo and Hotmail, social networking sites such as Facebook, and any information stored on Microsoft’s Windows Live cloud service. When you touch a contact’s name in the People Hub, you can not only call, text, or e-mail that person (a la the iPhone), you can also instantly view her social networking updates and new photos that she’s posted online.

The Web browser is also the most capable of any Microsoft has included in its mobile OS–finally catching up to Apple’s and Google’s mobile browsers. Based on the code for Internet Explorer’s desktop version, it also has subpixel font positioning for clearer text on a phone’s tiny screen. And with the super-customizable start screen, you can even pin a specific Web page to the phone’s start page, not just the browser’s opening screen. Notably, though, the first version of Windows Phone 7 will not include Flash support–though Ballmer made a point of saying that Microsoft is not in any way opposed to Adobe Flash, indicating that its exclusion from version one may be related to the effort to get phones running the new OS on the shelves in time for Christmas.

The integration between Windows Phone 7 and Microsoft Office looks terrific, as expected. The full suite is available on the phone, including One Note; users can add new notes using the keypad, with the phone’s camera, or by voice. In addition to syncing documents to an individual PC, the OS also offers connection to Microsoft’s SharePoint collaboration tools, either via a corporate server or the Windows Live cloud service.

But to me, the biggest differentiator for Windows Phone 7 is the Gaming Hub. Belfiore commented on explosion of gaming, particularly on phones. A report released by analysts at Pyramid Research in August 2009, predicted that the mobile gaming market will reach $18 billion by 2014. Microsoft hopes to tap into that market–currently dominated by Apple’s App Store–by fully integrating the new mobile OS with its Xbox Live platform. Windows Phone 7 users will be able to interact with people playing games on other phones, PCs, and Xbox consoles. Incorporating Xbox gaming into Windows phones may also help stem the gaming console’s predicted slide into third place, behind Nintendo’s Wii and Sony’s PS3. (The Xbox 360 is currently in second place, with about 29 percent of U.S. and European market share.)

Of course, nothing is certain until phones show up in the stores, but it will be fascinating to see how first developers and then consumers react to Microsoft’s attempt to reposition itself in the mobile device marketplace. Windows Phone 7 seems like a well thought-out and nicely designed operating system, but it has a lot of work to do to catch up with Apple and Android.