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http://www.cnn.com/2009/TECH/01/26/microsoft.mobile/index.html?eref=rss_latest

(CNET) -- Microsoft has made some stumbles in the mobile world, but a strategy shift made more than a year ago will soon pay dividends, the company's top Windows Mobile executive said in an interview with CNET News.

Microsoft CEO Steve Ballmer discusses his Windows Mobile offerings earlier this month at CES in Las Vegas.

Andy Lees, the executive brought over from the server unit a year ago, said that Microsoft's efforts to make sure that its mobile software could run on a wide range of phones resulted in an operating system that failed to take advantage of advances in hardware.

"We aimed to go for a lower common denominator," Lees said. Microsoft was also limited by the origins of Windows Mobile, which was developed to power handheld computers that neither connected to a network nor handled voice.

"We started out when we were in PDAs (personal digital assistants) and then a phone got strapped to the back of the PDA," Lees said. The company also failed to recognize that phones--even those that were used for business--were still as much personal as they were professional.

Meanwhile, Apple and Google have joined the fray with operating systems designed from the ground up to take advantage of the latest in phone technology.

But Lees said that Microsoft embarked on a new strategy some time ago that will come to fruition over the next 18 months. The first steps in that strategy, he said, will be announced at the Mobile World Congress conference that takes place in Barcelona in the middle of next month.

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"You are going to see a bunch of announcements at Mobile World Congress but also it is going to be the beginning of a 12-, 18-month period where you are going to see a whole bunch of different stuff," Lees said.

Part of Microsoft's new strategy, Lees said, is not relying on operating system upgrades to improve its products. The new approach, while still making money by selling a mobile operating system, places considerable focus on services that help connect the phone to the PC and Web as well as devices such as the Xbox.

Microsoft has two separate teams at work on the services piece. One is Microsoft's Windows Live group, while the other is a rather secretive group headed by former Mac unit head Roz Ho--a group that also includes the team Microsoft acquired when it bought Danger. Lees declined to say specifically what Ho is up to, however.

But Lees acknowledged the company also needs to improve that core operating system, which is widely seen as lagging that of most of its rivals.

For some time now, Microsoft has been working on a significant overhaul of its operating system, known as Windows Mobile 7. However, that project has hit delays, prompting Microsoft to push forward with an interim update, Windows Mobile 6.5, which the company is widely expected to detail next month. Lees declined to comment specifically on either version of the operating system, but promised the company would have more to say on the OS front in Barcelona.

Lees also promised that Microsoft would start working more closely with hardware makers. He pointed to deals late last year with LG and Samsung.

He noted that the power of the kinds of phones that come out next year will be incredible, well beyond even today's devices. Phones next year will have dual-core processors, super-fast data connections, and graphics power rivaling that of the original Xbox.

"That's a phenomenal thing on a phone," he said. The phones of the future will also have location information beyond just GPS sensors. "It will know where it is pointing, it will know which angle it is being held at."

Web browsing has been another weak spot for Microsoft. The company made up some ground late last year with a pocket browser that essentially crams the desktop Internet Explorer 6 into a Windows Mobile phone. But it lacks the kind of easy zooming and gesture recognition present on the iPhone or in Palm's Pre. Lees promised that Microsoft would surpass those interfaces by the end of the year.

Lees would not confirm details of a rumored rival to Apple's App Store, reportedly known as SkyMarket.

"There is some question whether we can more directly connect the developer and the end user," he said. "We're looking at that."

Apple dismissed the notion that Microsoft and others are catching up to the iPhone, however.

On a conference call with analysts last week, Apple CFO Peter Oppenheimer dismissed the growing competition from rivals saying Apple remained "years ahead" in the phone business.

"Our competitors are scrambling to try and copy our success," he said.