From the outside, it looks like the chance to win came to Microsoft in 2007. They had a mobile OS that worked and was essentially as good as Android at the time and was being deployed. Note that at the time, Android was designed for hardware keyboards too — and it sucked!
They didn’t identify the two opportunities that Google did though:
- Every phone manufacturer wanted something that would compete closely with the iPhone because the carriers were demanding it. Give them a crummy version of the iPhone OS quickly and they’d run with it (the first android phones and builds were terrible). Instead, Microsoft put Windows Phone on ice and spent years making it pretty great. Android had taken huge marketshare and iterated quickly during that time and Microsoft never caught up.
- Make it free with restrictions. Microsoft always gave lip service to Bing and advertising and this was their opportunity to make that a reality Google realized no one would pay for their crummy OS, Microsoft thought that if they spent 3 years making it better maybe they would. (admittedly it’s possible that the DOJ would have killed an Android-style giveaway)
- Microsoft couldn’t give up margin on Windows because they couldn’t envision a world where they could make up for it in volume — a world with billions of devices springing up in a matter of years.
- Microsoft was caught flat footed. Balmer couldn’t admit a loss, couldn’t see the present let alone the future, and was unwilling to throw out the old model. Gates had checked out.