The minute Palm and PalmOne split up, speculations arose regarding the direction the phone maker will take when it needs a new OS for its upcoming devices. Since there are only three big players in the market including Palm, Windows and Symbian (with Linux gradually starting to pick up), PalmOne decided to opt for Microsoft’s Windows Mobile OS. The reason is quite clear, Microsoft obviously wants a pie of the hugely lucrative smartphone market and probably offered to license the OS at a desirable price. In return, it became a platform for one of the most popular handhelds, the Treo.

The marketing strategy for Microsoft couldn’t have been better or simpler. In 2003, more devices operating on the Palm OS were shipped than with Microsoft’s Mobile OS, but this year, however, that has changed. Microsoft has already surpassed Palm quite comfortably and sold the maximum number of smartphones, thereby proving that users would rather have a familiar interface (that of their PC) than something alien with a learning curve. O2 devices already come with Windows, as do myriad of other Pocket PCs.

Microsoft evidently realizes the importance of the handheld market and knows for a fact that anyone who wants more than just mobility will opt for a smartphone. Going by the sales figures of these devices, there are a lot of multi-users out there that would prefer a smartphone over a Pocket PC or a similarly dedicated device.

The smartphone market is really beginning to take off, and Microsoft is already there to rule it. An interesting offshoot to this could be that smartphones might end up killing Apple’s iPod in 2005, as expected sales of mobile phones with music capabilities is 112 million, more than double the number of MP3 players expected to retail this year.

Could the smartphone be the device that a Tablet ventured out to be? Well, if the only advantage of a Tablet is that it can take notes along with handwriting recognition, there’s nothing that would stop Microsoft from designing a phone similar to the O2 and putting similar features in it? In fact, most smartphones already come with this feature, so perhaps Microsoft has already shifted its focus from promoting Tablet PCs to promoting smartphones and/or Pocket PCs.

Microsoft already sells the most copies of PC based OS, and last year it outsold Palm OS based devices. If the Treo 700w takes off, it will probably end up taking Microsoft to the number one position here as well. Although a spanner in the works could be the other versions of the 700, as Palm has said that it will not base any devices on Linux or Symbian but will for sure integrate them with a Palm OS. This could be the slight leverage that Palm was hoping to have in case Microsoft turns hostile, but if you look at the bigger picture, Microsoft has, yet again, secured a great bargain and is set to dominate yet another market.