Microsoft announced an update for its Windows Phone 7 OS under the moniker Mango which will be rolled-out this fall bringing a deeper integration between native services and apps.

Also Reuters reported that OEM HTC is planning to build a smartphone on the Mango platform.

Microsoft launched its WP7 OS - an OS built ground-up for smartphones - in October 2010. Gartner estimates that Microsoft has sold about 1.6 million units in the first quarter of 2011. The WP7 ecosystem currently boasts about 17,000 apps in the Windows Phone Marketplace.

However, this performance pales into oblivion when compared with the success of Apple's iOS and Google's Android platform. The pressure to succeed against these stalwarts is best revealed by a recent report by Bloomberg which states Greenlight Capital Inc. President David Einhorn - best known for short-selling Lehman Brothers - has asked for Microsoft CEO Steve Ballmer's head.

The new WP7 update Mango will usher in 500 new features and is claimed to consolidate the Smartphone experience around communications, apps and the Internet. WP7 offers a hub-like interface which collates apps and content around subject specific hubs unlike grid-based UI offered by Android and Apple iPhone.

New services offered by Mango include App Connect which ties apps to the Windows phone hubs, thus contextualizing apps rather than allowing individual apps existence. Local scout which brings location-based services, threads which allows switching between texts like Facebook chat and Windows Messenger and multi-tasking. They enable simultaneous opening of other apps, which run in the background.

Microsoft's key thrust has been to integrate its native phone services with its online services like Xbox Live, Microsoft Office 365 and SkyDrive services. Thus, Microsoft is leveraging on its current online assets. Also it is weaving the smartphone experience closely with the social experience. It cites the example of apps - for example when a user is searching for movies on Bing, its new feature App Connect will immediately suggest an app like Fandango app that allows users to buy tickets online.

The intuitive nature of Mango also stitches the Facebook, Outlook, LinkedIn, Windows Messenger and twitter together. If a user wants to send a message to someone Mango will quickly ascertain if a person is online and then suggest the best medium to connect.

Microsoft also confirmed that OEM partners Acer, Fujitsu and ZTE Corp. will be delivering Mango phones.

Microsoft has a solid content retailing infrastructure which covers all the primary offerings like Apps Store, Music Store, Movie Store and billing. Unlike Android which does not have its own Music and movie store, Microsoft has the assets like Zune and Xbox Live with in-built purchase mechanisms which Android lacks.

Thus, merging its native services with online services, Microsoft's Windows Phone 7 has the essentials for platform differentiation and user value proposition.

Recently, Microsoft also deepened its integration with Facebook to offer more socially refined results through its Bing search engine. The new feature in Bing brings the Friend Effect to search. The idea was based on the premise that the best advice comes from friends and relatives. Bing takes this assumption to next level by integrating clues received from a user's social circle to rank the page.

The only caveat in its portfolio is the lack of apps, currently numbering 17,000, while Apple recently reached the 500,000 apps and Android sports more than 100,000 apps. Microsoft is, therefore, announcing the update prior to its launch in fall to gain mindshare.

Although Microsoft has the necessary differentiation and the supporting infrastructure, Microsoft is lacking the speed of innovation, that its rivals have, say Google, which is due to launch it's the third Android upgrade in Ice Cream Sandwich after Froyo and Gingerbread, and Apple that is due to offer iOS5.