The Microsoft executive who oversees software design for Windows Phone admitted that the mobile operating system was redesigned in response to Apple's iPhone.

"Apple created a sea change in the industry in terms of the kinds of things they did that were unique and highly appealing to consumers," Joe Belfiore told The New York Times. "We wanted to respond with something that would be competitive, but not the same."

Despite being an early player in the smartphone sector, Microsoft's effort was hobbled by software that featured complex on-screen menus that borrowed design cues from its desktop cousin. As insiders tell the newspaper, once the iPhone appeared on the scene, Microsoft executives knew that their OS would not be able to compete as designed.

After a seven-hour meeting called by mobile engineering chief Terry Myerson to discuss the fate of its mobile OS, the management team for the mobile group decided there wasn't much in Windows Mobile worth saving.

"We had hit bottom," Myerson, who was recently promoted to run the company phone business, told the Times. "That frankly gives you the freedom to try new things, build a new team and set a new path."

The team concluded that it was necessary to start over from scratch, a decision longtime Microsoft manager Charlie Kindel compared to hiker Aron Ralston's decision, depicted in the movie "127 Hours," to amputate his own arm after a boulder fell on it.

"This boulder comprised of Apple and BlackBerry rolled on our arm," he said. "Microsoft sat there for three or four years struggling to get out."

The time it would take for Microsoft to redesign its mobile operating system would prove costly, allowing Google to gain huge market share. In the third quarter of 2010, when Windows Phone 7 handsets were introduced, Microsoft's mobile OS held 9 percent of the smartphone market, behind RIM's BlackBerry (33.5 percent), Google's Android (26 percent), and Apple's iOS (25 percent). A year into Microsoft's turnaround effort, its share of the mobile OS market has dwindled to 5.2 percent, while Android now controls 46.9 percent.

Microsoft hopes to recapture some of that lost luster with the expected launch of the Nokia Lumia 900 at CES this week. The two companies are reportedly planning to spend $200 million on marketing in the U.S. to promote the upcoming lineup of Windows Phone 7 handsets.