The core of the problem is that Android has the lion's share of interested from handset makers. Since Android and WM7 are handset-agnostic, its obvious that manufacturers are going to go with whatever they feel will make their phone sell better.
Of course, Android came out sooner and has a lot more interest and advertising dollars behind it, so its going to do better. Nokia coming on board will be a very significant move in the right direction (probably to the tune of 15-20% market share by the time they make the switch).
The real question is if other manufacturers come on board in a big way or not. Nokia's smartphone market share has been dropping faster than a rock (relatively)....So Microsoft is buying into a weakening manufacturer.
I'm unsure if the overall move will let MS win in any way. Likely, it will make them more viable than say....RIM, but that is hardly an accomplishment now.
Yep, the problem is that Android got there with a modular OS solution first.
As OS vendors, Google and Microsoft aren't exactly selling to customers, they're selling to handset manufacturers and the carriers who contract them. Android offers a more established ecosystem, an OS which can be customized with UIs and pre-loaded software for differentiation, and does it at the low price of free (though usually the manufacturer chooses to pay for licensed Google apps). Even if a manufacturer were looking at each platform fresh, Android looks more attractive, and then you consider that most of them have already invested a lot of R&D working on Android handsets.
Other than the Nokia deal, the only other big asset Microsoft has is that the price of Android keeps creeping up as Android vendors keep losing lawsuits. Sometimes free isn't so free, and it's easy to see how a manufacturer might decide to take shelter under Microsoft's umbrella rather than paying to fight Google's legal battles.
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