I know it gets cited all the time, but it might be worth it to take another look at the famous "Ballmer laughs at the iPhone" video.
He dismisses the iPhone because it's too expensive and doesn't have a keyboard (so it's not "a good business machine"). He expresses satisfaction with, specifically, the Motorola Q, which is "$99 on contract, it's a very capable machine, it'll do music, it'll do internet, it'll do email, it'll do instant messaging, so I kinda look at that and I say, well, I like our strategy, I like it a lot."
He meant this, of course:
Which gives you a sense of how clueless Microsoft/Ballmer was, even after they had been shown the future. Price, hardware keyboards, and "functionality", without any acknowledgement or even apparent awareness that those very features had remained business ghetto niches because they could only be accessed via fussy little directional pads, PC like menu structures, and opaque, inconsistent hardware buttons. I'm sure the iPhone struck him as a gimmicky luxury item, nice for what it was but no match for the "capable machines" that represented Microsoft's "strategy."
That's not being somewhat late to innovate or slow to incorporate new tech, that's a fundamental inability to understand why to innovate, which is to make devices that are more satisfying to use. MS expects its customers to learn how to use their stuff so they can take advantage of all the great features MS has crammed in there. Apple is interested in figuring out what people might like to do and how to make that easy as possible.
Obviously, once the iPhone and its Android follow-on had made it clear that any phone that didn't follow the iPhone template would have no chance whatsoever in the market, MS was obliged to change it up and try to at least appear consumer friendly with their mobile offerings. To their credit, they elected to do something different than just copy the iPhone, although it's not entirely clear that their choices make their devices any easier to use. But I suspect that nothing really has changed, and that without an Apple to show them what needs to happen, they'll continue approach every problem as matter of "strategy" and "capable machines" and "features", instead of thinking about how people live, what they want, and how you might go about giving them that.
Edited by addabox - 2/19/13 at 12:21pm