Windows Phone 7 finally arrived in the US last week, Microsoft's key territory and without a doubt, it's make or break time for Microsoft's aspirations in the mobile device market.

Initial estimates hint that sales were lacklustre on launch day, with only 40,000 phones sold. There are no firm figures from Microsoft yet, which adds weight to the speculation since the marketing department is never shy to crow about success.

Despite the "7" in the title, this is in fact the first release, timed to arrive on the scene before the 2010 Christmas spending season. The reviews I've seen show the OS to be solid, but lacking a shopping list of features that Apple and Google have implemented thanks to a multiple year head-start.

To be honest, I'm not surprised that WinPhone7 really isn't quite ready to take on rival platforms that have been in the wild for several years. With the strength of the Apple brand and the phenomenal growth of Android over the last 12 months, Microsoft simply had to get the OS out the door before the end of the year to stand any chance of staking a claim in the smart phone market.

The only reason Microsoft could even consider launching the OS before it was really ready is due to their business model, and unfortunately for Microsoft, I think that the very same business model will be the reason why Windows Phone 7 is doomed in the long run.

A familiar business model

Without a doubt, Microsoft has turned it's all-seeing eye on Apple and decided that copying the Apple business model is the key to success, including retaining control of OS updates and specifying minimum, high-end hardware requirements.

Microsoft has pretty much eliminated the carriers and manufacturers from the user experience by blocking their ability to add enhancements (otherwise known as bloat-ware) to phones that run the OS. Additionally, OS updates come direct from Microsoft, so when the company wants to roll out a patch or upgrade, the updates go straight to the end user.

It's this ability to bypass manufacturers and carriers with OS updates that has allowed Microsoft to release the OS early, in the expectation that they can patch it at will without interference.

Both Microsoft and the end user think this is a great idea. Unfortunately, it's hurting a third group that is key to the success of the platform.

Who bears the risk?

By retaining control of the hardware and OS Microsoft has ensured that the companies charged with bringing the devices to market and putting them in the hands of consumers are going to have a great deal of difficulty making a profit.

Microsoft's iron fist has resulted in manufacturers announcing nine phones for the launch that are very much the same, all targeted at the iPhone crowd, differing largely in screen size, bezel style and built in memory. The only exception to this is the "innovative" HTC Surround, which offers oversized speakers of dubious quality.

How are the largely uninformed masses supposed to decide between the different models from the different manufacturers? The phones all look very similar, all offer the same features and all have exactly the same user experience because Microsoft won't let the manufacturers or carriers brand the phone.

The answer of course, is that they will decide by price.

Microsoft has entered the smart phone market with an OS that forces phone Windows 7 phone manufacturers to directly compete against each other on price. It's those very same manufacturers that are going to lose money if their Windows product doesn't sell because a rival company sells a nearly identical product cheaper.

A lacklustre launch

Microsoft is reported to have spent US$100 million dollars on the launch last Monday, resulting in sales of just 40,000 phones. Despite spending that much money, anecdotal evidence shows that there was little demand on launch day, with few stores reporting queues prior to opening, and no reports of the crowds that typically greet the launch of high profile tech products.

Regardless, there have also been plenty of reports of stores receiving little stock. Only five of the nine phone models were actually available and many stores only had a few examples of each. Stories from the press tell of parts shortages and manufacturing problems on a world-wide scale accounting for the lack of supply.

Can all the phone manufacturers really have been unable to mass produce phones that have nearly the same hardware as the top-selling Android powered Samsung Galaxy S and HTC Desire? I have seen no reports of shortages of either of these phone models.

I suspect the more likely explanation is that the manufacturers don't expect much from Windows Phone 7 and simply aren't producing the phones in quantity, due to the risk. On top of that, the recent Kin phone disaster can't be helping as it would probably make the US carriers unwilling to devote resources to a new Microsoft platform.

What could have been

Realistically, Microsoft has attacked the market from the wrong direction. They have abandoned what little market share they had in smart phones (Windows Mobile) and are attempting to start from scratch, tackling Apple head-on in Apple's home market, premium smart phones. This approach might have worked before the iPhone express got under way, but who could have known that an easy to use touch phone could be so successful?

Microsoft made it's name by flooding the market with low-cost, adequate, but mediocre products, namely Windows and Office. They should have approached the smart phone market in the same way, by mass-producing a full-featured, low cost smart phone running a simple to use touch interface and then mass-dumped it into Nokia's feature phone market.

Something like the Huawei IDEOS would have been perfect.

Update 20th November, 2010

Pierre Perron, CEO of Sony Ericsson France has confirmed my thoughts on the matter, saying ““Their vertical approach does not allow us to differentiate ourselves. With Windows Phone 7, we run the risk of standardization of our smartphones. We would be obliged to fight only on design and price, what we want to avoid.”