I’m just back from the 2011 Consumer Electronics Show (CES).  I go to CES to get a sense of what Microsoft is doing in the consumer space, and how people are reacting to it.  When I first went to CES 2 years ago, Steve Ballmer announced the beta of Windows 7 at his keynote address, and the crowd went wild.  When I went again last year, everyone was hoping for a Windows tablet announcement at the Ballmer keynote.  Although they didn’t get one (unless you count the unreleased HP Slate running Windows 7), people continued to show anticipation around Project Natal (which became Xbox 360 Kinect) and around Windows Phone 7.  On the show floor last year, there were machines everywhere running Windows 7, including lots of netbooks.  Microsoft had a serious influence at the show both years.

But this year, one brand, one product, one operating system evidenced itself over and over again: Android.  Whether in the multitude of tablet devices that were shown across the show, or the burgeoning number of smartphones shown (including all four forthcoming 4G-LTE handsets at Verizon Wireless’ booth) or the Google TV set top box from Logitech and the embedded implementation in new Sony TV models, Android was was there.

There was excitement in the ubiquity of Android 2.2 (Froyo) and the emergence of Android 2.3 (Gingerbread).  There was anticipation around the tablet-optimized Android 3.0 (Honeycomb).  There were highly customized skins.  There was even an official CES Android app for navigating the exhibit halls and planning events.  Android was so ubiquitous, in fact, that it became surprising to find a device that was running anything else.  It was as if Android had become the de facto Original Equipment Manufacturing (OEM) operating system.

Motorola’s booth was nothing less than an Android showcase.  And it was large, and it was packed.  Clearly Moto’s fortunes have improved dramatically in the last year and change.  The fact that the company morphed from being a core Windows Mobile OEM to an Android poster child seems non-coincidental to their improved fortunes. Even erstwhile WinMo OEMs who now do produce Windows Phone 7 devices were not pushing them.  Perhaps I missed them, but I couldn’t find WP7 handsets at Samsung’s booth, nor at LG’s.  And since the only carrier exhibiting at the show was Verizon Wireless, which doesn’t yet have WP7 devices, this left Microsoft’s booth as the only place to see the phones.

Why is Android so popular with consumer electronics manufacturers in Japan, South Korea, China and Taiwan?  Yes, it’s free, but there’s more to it than that.  Android seems to have succeeded as an OEM OS because it’s directed at OEMs who are permitted to personalize it and extend it, and it provides enough base usability and touch-friendliness that OEMs want it.  In the process, it has become a de facto standard (which makes OEMs want it even more), and has done so in a remarkably short time: the OS was launched on a single phone in the US just 2 1/4 years ago.

Despite its success and popularity, Apple’s iOS would never be used by OEMs, because it’s not meant to be embedded and customized, but rather to provide a fully finished experience.  Ironically, Windows Phone 7 is likewise disqualified from such embedded use.  Windows Mobile (6.x and earlier) may have been a candidate had it not atrophied so much in its final 5 years of life.

What can Microsoft do?  It could start by developing a true touch-centric OS for tablets, whether that be within Windows 8, or derived from Windows Phone 7.  It would then need to deconstruct that finished product into components, via a new or altered version of Windows Embedded or Windows Embedded Compact.  And if Microsoft went that far, it would only make sense to work with its OEMs and mobile carriers to make certain they showcase their products using the OS at CES, and other consumer electronics venues, prominently.

Mostly though, Microsoft would need to decide if it were really committed to putting sustained time, effort and money into a commodity product, especially given the far greater financial return that it now derives from its core Windows and Office franchises. Microsoft would need to see an OEM OS for what it is: a loss leader that helps build brand and platform momentum for up-level products.  Is that enough to make the investment worthwhile?  One thing is certain: if that question is not acknowledged and answered honestly, then any investment will be squandered.