Microsoft replays Zune design for phone comeback

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Apple Inc. rocked the wireless business by combining the functions of a phone and an iPod. Now, more than two years later, Microsoft Corp. has its comeback: phone software that works a lot like its own Zune media player.

The software, which was unveiled Monday at the Mobile World Congress, is a dramatic change from previous generations of the software that used to be called Windows Mobile. But Microsoft is, for now, sticking to its model of making the software and selling it to phone manufacturers, rather than making its own phones.

Microsoft's mobile system powered 13.1 percent of smart phones sold in the U.S. last year, according to research firm In-Stat. That made it No. 3 after Research In Motion Ltd.'s BlackBerry and the iPhone. But Microsoft has been losing market share while Apple and Google Inc.'s Android gained.

All the while, the market is becoming increasingly important. People are spending more and more time on their phones, and the devices steer people to potentially lucrative Web services and ads.

Phones with the new software will be on the market by the holidays, Microsoft said. All four major U.S. carriers will offer phones, just as they sell current Windows phones.

The new ones won't be called "Zune phones," as had been speculated. The software will be called "Windows Phone 7 series."

Forrester Research analyst Charles Golvin said the new software looked promising, but that it was also Microsoft's "final chance to get it right." He notes that those who have current Windows phones don't seem excited about the brand — many of them believe their phones are made by Apple or Nokia Corp., according to his firm's research.