Microsoft CEO Steve Ballmer was interviewed (video) last week by VC Ann Winblad at the Churchill Club in Silicon Valley (I wasn't present). Among the many topics he discussed was mobile. Mobile is an increasingly strategic category for everyone -- especially the big search/portal players online.

Ballmer predicted massive growth in the smartphone market but contended that RIM (the US market leader) and Apple's iPhone (the innovator and market maker) would ultimately become niche players because of their proprietary software and closed systems. Ballmer compared the smartphone market today to the PC market in 1983. He argued that the "separation of hardware and software" (as on the PC) would be a key success factor.

The problem for Microsoft is that Windows Mobile badly lags the iPhone's and now Android's user experiences. According to VentureBeat and CNET, Windows Mobile 7, which the company has been previewing at mobile conferences, may be delayed until 2010. If, when it comes out, it's great then the wait may have been justified and the company will be back in the hunt.

However if the experience is mediocre or doesn't compare to what Android can offer (putting aside the iPhone), Windows Mobile may fall terribly behind. Accordingly, there's danger ahead for Microsoft in mobile. 

Windows Mobile has signficant marketshare today but has already been overshadowed by the iPhone. There's also competition coming from Symbian, which is going open-source, and RIM the enterprise leader. And there's reason to believe that Android could also become a significant threat. 

HTC has been the primary maker of Windows Mobile devices to date. HTC was also the hardware make of the G1, the first Android phone from T-Mobile. HTC will likely make more Android phones as well. And TechCrunch is reporting that Motorola (a member of the Android Open Handset Alliance) now has a "350 person team."

I recently purchased an iPod Touch, because I wasn't willing to switch carriers to AT&T to get the iPhone. By comparison to that device my HTC "Mogul" smarphone (Windows Mobile 6.1) emerges as a weak competitor. Indeed, I have completely stopped using my HTC phone for mobile Internet unless I'm not around WiFi and am compelled to. 

In other words, on the consumer side, Windows Mobile badly needs to keep pace with its sexier competitors (i.e., iPhone and Android). Thus the delay of Windows Mobile 7 is a significant problem. On the enterprise side, RIM and maybe Apple will make it tough for Windows Mobile compared with the experience it has had on the desktop. 

While Apple's exclusive deal with AT&T in the US will limit penetration (as with me), Android has no such limitations. The Motorola effort is likely being mirrored elsewhere and soon carriers beyond T-Mobile are likely to want to roll out their own Android phones. 

Unlike in the PC market, where Windows effectively had no competition until recently, it faces a much tought time in mobile. And without some significant mobile usability improvements, Microsoft may find itself in the unfamiliar position of being the marginal player.