What does the outcome of Microsoft's Kin mobile phone initiative say about the company? What's at stake with the upcoming release of Windows Phone 7? And is true that Microsoft isn't doing anything cutting-edge?

Those were some of the questions raised by KUOW's Steve Scher during an hour-long conversation on the future of Microsoft this morning. I had fun offering my perspective as one of the guests, opposite Microsoft communications chief Frank Shaw -- author of the widely quoted "Microsoft by the numbers" defense of the company.

Access the archived audio here. If you missed it, or aren't in a position to listen to the audio, continue reading for my rough notes on the first half of the show, which focused largely on the company's future in the mobile phone market.

Scher: Quotes from this weekend's New York Times: “The Kins’ flop adds to a long list of products — from watches to music players — that have plagued Microsoft’s consumer division, while its business group has suffered as well through less-than-successful offerings like Windows Vista and Windows for tablet computers.”

Scher to Shaw: What’s your response?

Shaw: Like many things, a bit overstated. True, Kin not a success. But look at Xbox as a great example of building out a business, Kinect motion sensor coming, pretty successful business. 40 million consoles, 25 million people use Xbox Live service on a regular basis. That looks pretty good. People sometimes use consumer to mean different things. Consumer is everybody at its most basic sense. We have billions of people using Microsoft software and hardware on a regular basis. A lot of people would count themselves as consumers at one level.

Scher: But you know what they’re talking about. ... Where is my Windows 7 phone that’s going to jazz me up the way the iPhone jazzes people up? That’s what they’re talking about.

Shaw: This fall Windows Phone 7 arrives in the marketplace. Has gotten some good reviews, we have to get into the marketplace and deliver.

Scher: A lot of people say this is the future, mobile computing. The critique of Microsoft the Kin is, how did you fall so far behind the curve with what was happening with the smartphone?

Shaw: Complicated topic. Should start with how rapidly that market is evolving. People leading in the market now were not leading a couple years ago, though there obviously is some crossover, so that’s opportunity for Microsoft. We’ve got Windows Phone 7 coming out, which we feel good about. The Kin was really an attempt to go after a specific demographic. We thought there was a space between the feature phone and the smart phone that the hyper-social audience would be attracted to. Research showed that to be the case, the market evolved, and sales of the phone were disappointing. Decided to focus on Windows Phone 7.

Scher: What happened to market?

Shaw: The space between feature phone and smart phone got squeezed and the cost of the phone plus the data plans got smaller (on the smartphone side), so it turned out that there wasn’t enough critical mass there.

Scher quotes Tim O’Reilly in NYT: “Microsoft is totally off the radar of the cool, hip, cutting-edge software developers. And they are largely out of the consciousness of your average developer.”

[Update, Wednesday morning: O'Reilly says in a blog post that he doesn't remember saying anything along those lines in his interview with the New York Times, and he feels "more than a little misrepresented" by the piece. Update II: The NYT's Ashlee Vance says he quoted O'Reilly correctly.]

Shaw: One man’s opinion. Microsoft has a lot of programs aimed at developers. Huge ecosystem. Always more that the company can do, but good example is DreamSpark program for young developers. Imagine Cup aimed at college. I feel like maybe our definition of cool and hip is different from Tim O’Reilly’s.

Scher: Asks about Microsoft transparency and company getting its message out.

Shaw: Conversations, coverage on blogs, newspapers, magazines, etc. has included a lot of negative chatter, but he looks at how Microsoft is doing, shipping products being well-received, Windows, Office, Bing, Xbox, Internet Explorer, Windows Live, Hotmail, and financial performance. A big gap between chatter among technorati or technosphere and reality of market. That’s a little bit dangerous, because conventional wisdom can develop an inertia of its own. We have to look at how are we going to do a better job of getting story out. Cites blog post with numbers showing momentum and success for the company, so people can decide for themselves.

Me: Clearly Microsoft is transparent in a lot of ways. Comes from heritage as company needing to court third-party developers for Windows, let them know what was happening. To the point of Tim O’Reilly on mobile and apps, that is the area where Microsoft has fallen behind. Apple has beaten Microsoft at its own game, courting third-party apps. Steve Ballmer’s mantra is developers, developers, developers, and Steve Jobs has really picked up that flag and flown it very well for the iPhone.

Scher: In terms of transparency, can you get the information you need from the company?

Me: Sure, after covering the beat for eight years, to the extent that the company is willing to talk about what it does, I’m able to find out what it wants people to find out — and hopefully more, as a journalist covering the company. That’s the way it is with any company, though. Frankly Apple or Google or anybody else is much more tightly controlled with information. It’s one of Microsoft’s greatest strengths and also one of its greatest weaknesses, because it is transparent to the extent that we can point to where it has not lived up to what it has said.

Back from break, Scher asks about mobile phones.

Me: To a certain extent, Kin was a science project. But core issue is Windows Mobile. Company was out years ahead. Targeted businesses, but Apple and now Google with Android have come along and targeted consumers, let that trickle over into business market. The fascinating thing here now is HP recently acquiring Palm, and signaling plans to use that Palm operating system on things that look a lot like traditional computers, on things that Microsoft would like to see Windows on, slates, alternatives to iPad. Microsoft’s soft underbelly is the mobile market. Question is whether company’s future is as strong in its traditional businesses if it can’t turn things around with Windows Phone 7.

Scher talks about his old iPAQ, "great little tool.” Quotes former Microsoft exec Dick Brass in NYT, saying Microsoft has become “clumsy uncompetitive innovator.” Scher asks how company can become nimble and competitive again.

Shaw talks about Kinect motion-based controller as an example of Microsoft innovation, controlling with motion and voice commands. Leap forward in the way people interact with machines. Also cites Xbox Live, points to people saying company was crazy long ago to connect console to Internet. Now it’s a “blinding flash of the obvious” that it was the right thing to do. Points to early momentum of Windows Azure, Microsoft’s entry into cloud computing.

Scher: Is cloud computing the future? How does company stack up?

Shaw defines cloud computing talks about benefits of blended world of cloud computing and local processing.

Me: Early for Microsoft in cloud computing. Clearly Microsoft’s core business is still traditional software. IE9 an example of this blended world, leveraging graphics processor to display web pages better. Microsoft’s hand was forced to get into cloud computing to a certain extent, Office Web Apps, etc.

Scher: Question about role of Office Web Apps.

Shaw: People still choosing Microsoft Office for value that it provides from overall productivity standpoint. Cites “ignore conversation” button in new Outlook software, as one example. Goal of having Office Web Apps is to provide sharing and collaboration. Ability to broadcast PowerPoint slide show via url in a browser.

Scher: Is the company competing in the right places?

Me: In some ways, perhaps the company is competing in too many places, and that’s one of its problems, it’s scattered all over the place in terms of its focus. Frank talked about the momentum company is seeing in its traditional businesses, Windows and Office, and it’s great that they’re adding new features, adapting those for this new world of online services. But a little like Seattle City Light boosting accounts because the city is adding population. To a certain extent, Microsoft in those roles is a utility. It’s something that people are going to get with new computers, as a result its market is going to grow. To the point of the conversation earlier, real question is whether Microsoft can gain traction in mobile to the point that it can preserve its long-term business.

Scher: Question about Microsoft vs. Apple financials.

Shaw: Look at the last 10 years even, we’ve grown revenue and profits in a phenomenal way, notwithstanding point about needing to do better in some areas. In 2003, had three businesses that generated a billion dollars in revenue: Windows, Office and Windows Server. Now there are eleven. So in 10 years we’ve grown eight new billion-dollar businesses. That is pretty impressive, and shows what we’re capable of doing.

You can access the full audio here, including listener questions about competition from open-source software and other competitive threats for the company.