By Daniel Eran Dilger

Published: 12:00 AM EST

Earlier this week, an anonymous tipster leaked the news that Microsoft's top secret Pink project, aimed to take on the iPhone just as the Zune targeted the iPod, was "near death and probably will be canceled." Another source has now spilled even more details about the internal crisis brewing within the company and how the failure of Pink relates to iPhone, Google's Android, and Windows Mobile.

The initial report, published by Greg Kumparak of MobileCrunch, was based on an anonymous source "with a seemingly exhaustive knowledge of Microsoft’s Project Pink." According to that tipster, the project is in disarray, with "no braintrust that understands how to build a product." Efforts to build a third party software platform for Pink are also in trouble because "team members don’t know how to get it done," the source claimed, with remaining employees complaining that they "hate the product" they're working on and feel like it was "never intended to ship," but that it only existed to "challenge [the Windows Mobile 7 team] and upset them into competing."

The report is bad news for Microsoft given that less than two years ago it paid a reported $500 million to acquire Danger, the developer behind the T-Mobile Sidekick. Microsoft's 2008 acquisition of the company was initially seen as an effort to breathe life into its struggling Windows Mobile division, which had been rapidly losing smartphone market share to RIM's BlackBerry in the enterprise and Apple's iPhone among consumers.

It was later revealed that Microsoft had converted Danger into "Pink," a top secret project operating independently from Windows Mobile, with the intent of directly challenging the iPhone. This mimicked Microsoft's earlier strategy of launching the Zune against Apple's iPod, which the company did while assuring its PlaysForSure hardware and music store partners that Zune wouldn't have any impact on their existing business. As it turned out, Zune had no impact on the iPod but completely destroyed the remains of Microsoft's PlaysForSure partnerships.

Our inside source now says the same thing is happening to Pink, even before Microsoft can finish it (jump to page 3 to read their letter). That's particularly problematic because Microsoft is already facing a schism between its Windows Mobile and Zune platform groups, their differing first party software development, and their business models for third party software and software stores.

Windows Mobile vs the Zune

Microsoft worked to keep Pink a secret, and its chief executive Steve Ballmer openly denied rumors that the company might be developing a Zune Phone earlier this year. The company has since made it clear that there truly is no Zune Phone in the works, as the company runs its Zune music player group entirely separate from its Windows Mobile business. Both systems are based on the same operating system (Windows CE), but the two platforms do not currently share the same mobile software store or the same development tools; each group within the company has even independently developed its own web browser.

There is only minimal overlap between the two platforms; Windows Mobile 6.5 has borrowed some of the Zune's menu designs, but the Zune is built around a touch-based interface while Windows Mobile retains a core dependence upon a stylus. According to reviewers, Windows Mobile is actually impossible to use without a stylus. And while Microsoft is now branding any smartphone running its software as a "Windows Phone," it has taken great pains to avoid associating the Windows brand to the Zune.

Microsoft's strategy is markedly different than Apple's, which presents the iPhone and iPod touch as being nearly identical both in hardware and software, with the only real difference being that the iPhone supplies a cellular radio, a compass, GPS, and a camera. Both share the same media formats, software titles, online stores, hardware accessories, the same development tools, and are built around the same multitouch interface with an identical look and feel. Apple even refers to the current operating system of both devices as being "iPhone 3.1 software."

Dangerous Liaisons: Pink vs Windows Mobile

Rather than melding Windows Mobile with the Zune to create a cohesive mobile platform like Apple, Microsoft moved in the opposite direction. The Danger group Microsoft acquired was run autonomously, creating a third fiefdom competing for attention and resources within the company.

Unlike Windows Mobile and its cousin the Zune, which are both based on the Windows CE operating system kernel and shared components above that, Danger's smartphone platform was based on a Java virtual machine running on top of a NetBSD kernel, although the Danger OS supplied its own proprietary APIs for developing mobile apps in addition to support for standard J2ME. That radical difference in operating system and application technology meant that Microsoft was unlikely to simply rebrand Danger's phones as its own; instead, the company announced that it only would be using some of Danger's ideas to build an entirely new "experience."

Danger was rolled into Microsoft's Premium Mobile Experiences group led by Roz Ho, who formerly ran Microsoft's Mac Business Unit. "We imagine a mobile experience that embraces sharing and celebrating relationships and personal moments,” Ho said in a press release. “Combining Danger and Microsoft talents together in the Premium Mobile Experiences team is how we’re going to deliver cool, new, fun mobile experiences to consumers. We want people to smile every time they look at their phone.”

Roz Ho's Pink Project

Ho, a 17 year veteran of Microsoft, works in a pink office (with the word "pink" actually painted on the wall). In a video published by Microsoft's Channel 9, Ho told her interviewers she was "having fun every day" and said her excitement about consumer products led to Microsoft assigning her the task of setting up a team of twelve to figure out how the company could best reach consumers in the smartphone arena. Ho said that her team was responsible for identifying and purchasing Danger, which brought 300 people into Microsoft from the company. Her team was later joined by an additional 200 employees working on the Pink project.

On camera, Ho declined to say anything specific about what her group was working to create. When asked why her office was pink, she laughed and said, "Actually I can't tell you!"

On page 2 of 3: Danger and iPhone, Android.

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