Microsoft is gearing up to take on rival Apple in the smartphone market.

The Wall Street Journal reported Monday that Microsoft is getting ready to launch an online marketplace akin to Apple’s App Store. Microsoft is also readying a more sophisticated version of its mobile operating system called Windows Mobile 6.5, the Journal reported.

Smartphones are sophisticated mobile phones that offer users access to the Web and e-mail, as well as, provide phone calling and all kinds of other messaging options. This category of device is the hottest thing going in the mobile market and is seen as the biggest growth engine for mobile devices over the next few years.

Microsoft, which only makes the operating software for these devices, holds third place in terms of worldwide market share, according to research firm IDC. Symbian, which powers Nokia’s smartphones, is by far the leader, followed by Research In Motion with its BlackBerry devices. Even though Apple seems to be the most talked about smartphone on the market these days, it’s only in fifth place in terms of overall market share for 2008, IDC said.

But Apple is quickly gobbling up market share and has become a serious threat to Microsoft and every other company competing in the smartphone market. With the release of the iPhone 3G last summer, Apple has tripled its market share from 3 percent in 2007 to 9 percent in 2008, according to IDC. Meanwhile, Microsoft only grew from 11 percent market share in 2007 to 12.3 percent in 2008.

Microsoft is facing several challenges as it tries to catch Apple’s growth rate. For one, the company’s business model is based primarily on licensing software to hardware vendors. While this business model worked fine just a couple of years ago, it’s difficult to justify now given that device makers can get free software from Symbian, Google Android, and Linux.

The second problem that Microsoft faces is that the company has been almost exclusively focused on business customers. Over the past year, smartphone users have gravitated toward more consumer applications. In addition, to their work e-mail, they want multimedia functionality and social-networking applications on their phones.

“Microsoft is in a really tough spot,” said Ryan Reith, an analyst with IDC. “It has to change its value proposition. And a big part of that is refreshing its user interface and making the device more consumer-friendly.”

Reith believes this is why it’s critical for Microsoft to develop an application marketplace that can compete with Apple’s App Store. The App Store went live last summer and offers thousands of applications for the iPhone and iPod Touch music player. The store has been very successful with users downloading thousands of free and fee-based applications.

Microsoft already has a developer community creating applications for Windows Mobile devices. But the problem is that many of these applications have been geared toward business users. And there is not a single destination that makes it easy for users to discover and download different applications.

“Clearly smartphones are not just for business users anymore,” Reith said. “Microsoft needs to work with the developer community to get more consumer applications out there.”

Microsoft’s executives have gotten the message that consumer functionality is hot. And Andy Lees, head of Microsoft’s mobile business unit, told the Journal that the company is about to put more emphasis on multimedia and other consumer functions like music and photos.

Microsoft is expected to unveil its new offerings next week at the Mobile World Congress trade show in Barcelona, Spain. Chief Executive Steve Ballmer will be delivering a keynote speech there on February 16. I will be there next week covering the news from the show, as will my CNET Reviews colleagues Bonnie Cha and Kent German.

But even with these enhancements, Microsoft has a tough road ahead of it. Competition in the smartphone market is increasing. And several competitors, including Android and RIM, are launching their own version of an application store.

Read Further…

Microsoft readies smartphone assault on Apple | Wireless – CNET News.

Official-looking pictures and pricing of Amazon’s Kindle 2 e-book reader have been leaked on the Internet. The information surfaced on a forum late last night and reveals a thinner Kindle but without the speculated price increase. Amazon is expected to officially announce the Kindle 2 during a press conference on Monday.

Improvements in the Kindle 2 design bring a thinner footprint, a metal back plate, and stereo speakers. As I mentioned last October, when the first Kindle 2 pictures surfaced, the design cues bring back memories of the first Apple iPods. As usual, the information is purely speculative but the forum reads that Kindle 2 will be available on February 24 for $359.

Kindle 2 features rounded corners, a black and white screen (apparently the same size as the original Kindle), a 3.5mm headphone jack with a sliding sleep button at the top and a unified QWERTY keyboard under the screen. Smaller navigation buttons are placed on both the left and right sides of Kindle 2. A joystick now replaces the original Kindle scroll wheel.

Amazon’s new Kindle will use the same EV-DO wireless technology for over-the-air downloads as the original. Storage-wise, Kindle 2 is said to come with a 2GB on-board memory. Form the leaked pictures, no SD card slot can be seen but my guess is that there will be a way to expand Kindle’s memory – maybe a microSD slot.

Leak: Amazon Kindle 2 Pictures and Pricing – PC World.

More from Facebook’s Schroepfer:

The future of an open and social web will be measured not by protocols, but by how much we collectively improve the standards and technologies that enable us and others to give people more powerful ways to share and connect.

There’s even an OpenID design summit being planned for next week, to be hosted (where else?) at Facebook’s offices in Palo Alto, California.

Facebook Throws its Weight Behind OpenID | Epicenter from Wired.com.

(Credit: Jajah)

Internet phone company Jajah can turn the iPod Touch into an iPhone. (Download from CNET Download.com.)

The company, which competes with other low-cost Internet calling applications such as Skype, announced Thursday a new application that will allow Touch users to call and text messages using a voice over IP network instead of a carrier’s cellular network.

All that is needed to start making calls is the Jajah application, the latest version of the iPod Touch, a microphone headset, and a Wi-Fi connection. While the Jajah service can reduce calling costs up to 98 percent, the fact that it must be connected via a Wi-Fi network limits where it can be used. For this reason, it’s unlikely that the Jajah-enabled Touch would really steal business away from the iPhone, which is a full-fledged mobile phone that operates over a traditional cellular network.

Jajah plans to sell the application as a “white label” service. This means that it will license the application to wireless operators and non-wireless operators who offer it under their own brand instead of a standalone Jajah application. It’s unlikely the service will be offered for free. Instead, service providers might offer the application for $10 a month.

The application could be very useful for iPhone users too, especially those wanting to make low-cost international calls from their iPhones. But it’s not clear yet whether Apple would allow the application on its App Store, since it essentially bypasses the carrier network. Skype, which also provides free and cheap Internet calling, is not available on the App Store. That said, iPhone users can access Skype functions and users through other applications such as Fring and Truphone.

Jajah adds calling and texting to iPod Touch | Crave – CNET.