Does Microsoft have an iPhone answer?

The iPhone is a tough act to follow.

That will be the challenge for Microsoft CEO Steve Ballmer, who is keynoting at the CTIA Fall 2007 trade show on Tuesday.

A preshow flyer promised a major news announcement from Microsoft. But what would be considered major for Microsoft in the wake of the iPhone?

To be sure, Microsoft targets a different audience than Apple. Those considering Microsoft's phones are typically e-mail addicts who are more likely to weigh a BlackBerry than anything from Cupertino.

But even business users would benefit from many of the features Apple has packed into the iPod. In particular, full Web browsing, the kind currently found in the iPhone, would seem to be high on the list of the CrackBerry crowd.

And with Apple having already announced plans to allow native development, one of Microsoft's key strengths--add-on applications--won't be a complete differentiator for long. Plus, Apple could cut a deal at any time with RIM, Motorola or even Microsoft itself and start offering corporate e-mail on the iPhone.

So the idea that the iPhone is more of a consumer device, while true now, may not remain true for all that long, and Microsoft would be wise to quickly add on any features that are truly compelling about the iPhone, including a multitouch interface. Microsoft already has that on its Surface tabletop computer. I asked Bill Gates last week when multitouch might find its way onto smaller devices, but didn't get a specific timeframe.

Longer term, Microsoft could even think about putting the full power of Windows in a phone, if it can create a slim version of the operating system. Historically, that has proved a challenge.

Microsoft's smallest full Windows devices, including the Origami devices, still have lots of drawbacks, including high prices, short battery life and sluggish performance, at least compared with what people expect from a pocket device. But processors get ever faster, battery life is set to improve, and the company is working on a slimmer, more efficient Windows core.

The ability to use Windows in smaller devices could prove key to Microsoft. One of the hidden accomplishments of the iPhone is the fact that Apple has proved that OS X can run in all kinds of devices, from servers to iPods. I expect we will see Apple use OS X in ever more devices, from living room products such as a more powerful Apple TV to ultra-small laptops.

Microsoft could certainly benefit from finding a way to give Windows equal flexibility.

Those are my thoughts. What would you like to see Ballmer announce Tuesday? Feel free to sound off below.