Microsoft has been building a phone OS for a decade. I had one before the original iPhone. At this point no one cares. Android is the other option. If they'd had built a better phone a decade ago, they would own the market by now.
It's actually closer to a decade and a half. The first release of Windows Mobile was in 2000, if you figure they started work a year or 2 prior that works out to nearly 14 years MS has been developing such things.
I don't know that Microsoft needs to be a consumer company — if they went with a business focus then that's their strong point (something that would be a bad move for Apple for example), and with Blackberry on the way down there's a niche waiting to be filled.
There are many criteria that allow you to judge an product better or worse. The selection of these criteria and their weight in your decision process are subjective. So please do not post absolutism like you did, when according to many people (and their subjective assessment) the competing products are better and would argue with you, that WP is worse.
I think it's more of an example of the difficulty of judging a "better" product objectively. The xbox 360 is seemingly an inferior product on paper to the ps3 but there are a myriad of other factors at play beyond superficial comparisons (development support, software quality, ecosystem, network effects, etc.)
Microsoft wasn't late to the smartphone party, they were at the forefront. In 2005 if you wanted a smartphone the best option was probably one that ran Windows Mobile. But MS didn't take the market as seriously as they should have and didn't innovate aggressively. So they got caught with their pants down when Apple released a v1 product that was better than their nth generation offering.
MS's mobile division has since recovered in some ways with windows phone 7 but it's also had some missteps in the same time frame (zune, kin). Few people trust MS to consistently deliver a better experience and a better platform than the competition. And now they no longer have the network effect in their favor.
More savvy folks are likely to remember the debacle leading up to windows phone 7 and the severe trouble that entire team has seemed to have executing in the past. It will probably take years to erase that reputation but by then it may be too late given the pace the market moves at.
Windows Phone 7 seems to be quite solid in and of itself, but it needed to be not just incrementally better than the competition but unarguably better. As it stands the few areas where it did have an advantage are rapidly dwindling as the competition catches up.
