Outgoing Microsoft CEO Steve Ballmer has said that the failure of Vista was his biggest regret as CEO because it meant he had to devote more resources to fixing it and had fewer resources to devote to making a better mobile operating system. Daring Fireball’s John Gruber, however, thinks that Microsoft’s struggles in the mobile world go far beyond this and are instead fundamentally about the company not understanding the importance of the iPhone back when it launched in 2007.

By now we’ve all seen the video of Ballmer dismissing the iPhone for being too expensive while saying that it would never succeed in the business world because it lacked a physical keyboard. In other words, he was making the same mistake that BlackBerry made by dismissing it as an expensive “toy.”

But as Gruber notes, Google decided to take a different tack and has been rewarded accordingly.

“While Ballmer laughed at the iPhone and presumably walked around with a Windows Mobile piece of junk in his pocket, Larry Page and Sergey Brin carried iPhones,” he writes. “Google never laughed at the iPhone; it made money from it by providing web search and maps. Google quickly became, and remains to this day, a leading developer of iOS apps. And it was Google that was fast to follow the iPhone with Android.”

In fact, we know that not only did Google follow fast with Android but that seeing the iPhone for the first time forced Google to up its game and remake Android so that it would be more competitive with iOS. And it really wasn’t until the release of Windows Phone 8 in 2012 — five years after the iPhone and four years after Android — that Microsoft had really built a competitive mobile platform.

The result is that Google’s Android is now the dominant mobile platform in the world while Microsoft at this point would be happy just to have Windows Phone crack a 15% market share.