John Gru­ber has some inter­est­ing thoughts about the odd-​man-​out at Google’s I/​O con­fer­ence this week:

The big loser this week, though, was Microsoft. They’re sim­ply not even part of the game. RIM looms large, as Black­Ber­rys con­tinue to reign as the best-​selling smart­phones in the U.S. But Microsoft? They’ve got noth­ing. No inter­est­ing devices, weak sales, and a shrink­ing user base. Microsoft’s irrel­e­vance is taken for granted.

Google’s com­pet­i­tive focus on the iPhone at I/​O was intense and scathing. But it’s Microsoft’s lunch they’re eat­ing. Apple’s and RIM’s game is sell­ing the inte­grated whole — their own devices, run­ning their own soft­ware. Google is play­ing Microsoft’s game — licens­ing a plat­form to many device makers.

Dar­ing Fire­ball: Post-​I/​O Thoughts

This is the way I’ve seen the mobile mar­ket shak­ing out for quite some time now. Google’s Android fills pre­cisely the same niche that used to be filled by Win­dows Mobile, but it does so with New Hawt­ness that Microsoft just can’t seem to match. The Kin will never be the hit the Side­kick was, because the mar­ket is dif­fer­ent now and app-​based smart­phones are the norm, not the excep­tion. Yes, the Kin line is sup­posed to merge with Win­dows Phone 7 even­tu­ally, but by the time it does, Android 2.2, with all its speed and Flashy good­ness will be the norm, if not replaced by Android 2.3 or later. Microsoft is caught between a rock (okay, an Apple) and a hard place (a shiny, cheer­fully mul­ti­color hard place). They’ll never have the kind of mar­ket share needed to make their $8 – 15 mobile OS license busi­ness model pay off.

So the real ques­tion is this. Microsoft can see the writ­ing on the wall. They know mobile is the Next Big Thing, as big a shift in per­sonal com­put­ing as the advent of the GUI over com­mand line inter­faces. Not par­tic­i­pat­ing would be cor­po­rate sui­cide. But what they’re doing with Win­dows Phone 7 can’t pos­si­bly suc­ceed. Google gives Android away for free. They can’t beat free. So what do they do?

Microsoft’s only hope is to merge the Kin, Zune, Xbox Live and Win­dows Phone 7 into a sin­gle plat­form, and do it now. Release a kick-​ass smart­phone with Zune and Xbox inte­gra­tion and a ready to go app store this year, before the hol­i­day shop­ping sea­son. And make it pretty. Oh, so pretty. They can’t com­pete with Google on price, so they have to com­pete with Apple on user expe­ri­ence and integration.

(Now might be a good time to sell those shares of MSFT you’re still hang­ing on to.)