Microsoft is in the throws of attempting to remake itself into a viable mobile device player on the remains of its now lagging Windows Mobile OS product. It has bifurcated its strategy by releasing two new mobile OSes – Windows Phone 7 and Kin. Both offer updated and modernized UIs – a welcome departure from the aging and complex UI of Windows Mobile past. WP7 is more targeted at a mainstream smart phone user that has a personal life, but clearly needs to run business applications and stay connected via email. Kin is much more targeted at the younger and socially interactive crowd where personal contact is everything.

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Many argue that WP7 is Microsoft’s “must win” offering. And I agree that if WP7 is an utter failure, Microsoft is in trouble in the mobile space. But, I would argue that Kin may be the ore important product of the two OS offerings. Kin is a bigger gamble, whereby Microsoft is trying to define a new market niche. If it catches on, Kin could usher in a new class of “Facebook in Your Pocket” devices, just like iPhone created a class of devices for Internet-centric users. And Kin could grow virally – affecting a large group of “teeners” and “twenty somethings” and offering the potential for huge upside if these devices take hold with a relatively fickle audience. Compared to the business-oriented “prosumer” market where WP7 is aimed, the potential number of  “Kin-sters”  is staggering.

But Kin is a locked-down OS. Microsoft controls the ecosystem for Kin as effectively as Apple does for iPhone. Kin users have extremely limited ability to run applications locally (other than photos, music), and are virtually entirely reliant on the cloud. Microsoft’s Live services are what makes Kin work and are the backbone of the Studio cloud-based environment for Kin’s storage and services.

Currently all Studio services are run by Microsoft. What will Microsoft do for ISVs who want to add services? No doubt they will institute a revenue-sharing model, just like iTunes provides. But will Microsoft be as heavy handed as Apple in deciding what will or will not run on the device? Only time will tell, but it is unlikely we will be seeing any major Google offerings anytime soon. I see KIN as a big gamble for Microsoft.

How well will Microsoft and carrier partners (Verizon in the US, Vodafone in other parts of the world) promote the device and build a loyal and virally-expanding user base? Success will depend on how well Studio and Windows Live support and integrate with the phone, and since only Microsoft can deploy a new service to the device, how well it does so is critical.  Success will also depend on what types of service plans are available, how they’re priced, and how good the service is (i.e., the AT&T/iPhone fiasco would be a killer for Kin). Finally, what specialized services will the carriers offer to try and garner some of the potential cloud revenues?

Microsoft is going after a new “niche” that hasn’t directly been targeted before with a locked down device. Will the targeted users care that they can’t download the apps they want, like on iPhone and Android? Probably not, although the Kin browser does support AJAX and JAVA, but not Flash. But the potential win for Microsoft is huge if it can capture even a relatively small fraction of the hundreds of millions of social network users. In fact, it could dwarf the few tens of millions potential of its WP7 smart phone devices. With KIN, Microsoft gets to sell a lot of services in the cloud, and not just license the OS, as in WP7, so Kin is ultimately far more profitable than WP7.

I expect Kin’s success will be more indicative of how well Microsoft can do in the mobile space overall than WP7’s. It will be interesting to see if this gamble pays off. And the competitors it is targeting, primarily Nokia, Samsung, LG and HTC, will likely take similar actions if sales of this social-centric device are strong. Only time will tell. But this time, Microsoft may have hit upon a compelling niche.

Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.

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