They key to WP7 is that it's a competitor to Android. Apple iOS is not available to OEMs, but Android and WP7 is. If handset OEMs do not have a second choice, they'll have a single external dependency on Google and Google will use it to push them around or Google might screw it up really bad. It's in the OEMs best interest for WP7 to at least become somewhat successful so they themselves have a second option.

There is no such dependency on Google with Android because it's open source. You don't have to ask them permission or pay them money to build a phone with it. I agree life may be hard if your competitors get the code before you do and that you may want to have a cozy relationship with Google (and cooperate with your competitors on some level) but it's nowhere close to the dependency you get being a WP7 OEM.

If I ran a phone maker, I'd keep a WP7 handset or two in the lineup (because there will be people who'll want it) and because I don't like to be cornered. But I'd also keep a team ready to run with Android without Google support, knowing exactly what I'd have to change if I couldn't use Google brands or software.

But, again, you don't have to depend on Google like you do with Microsoft. And true great devices come from the careful matching of hardware and software and that's hard to do if you don't get the source code.

You need a decent relationship with Google to maintain access to the Marketplace, however.

You need to work together with Google to gain access to the whole ecosystem, but nothing prevents you from having your own market and it may make sense in some verticals (like B&N does)

I don't see why you think WP7 is a competitor to Google but not Apple. Philosophy-wise, it is somewhere between the iOS and Android platforms. More locked down than Android, less locked down than iOS. Like Android, WP7 is currently distributed by OEMs, independently from Microsoft. But the licensing agreement for those OEMs is much tighter than it is for Android. Like iOS, Microsoft has an established entertainment distribution channel centered around XBox Live and the Zune technology. Even if they think Android is an easier target, I guarantee you they consider Apple a competitor.

In any case, I don't see why you think OEMs are particularly dependent on Google. Google has no direct control over Android -- it's just that Google's fork of the Android source code is the most popular with OEMs for the time being. There is nothing stopping OEMs from building their own CyanogenMod-type customizations (after all, Samsung just hired the creator of this ROM) or even forking Android entirely as apparently some Chinese OEMs are doing: http://arstechnica.com/gadgets/news/2010/07/androids-ascent-.... Hell, there's nothing stopping Microsoft OEMs from releasing their own customization of Android with deep integration with XBox Live, Bing search, and Microsoft's other cloud services.

I think we'll see some interesting things play out with the proposed Google purchase of Motorola and Nokia becoming a premier(favored?) WP7/7.5+ partner. In the case of Google, they might be able to set the standard for Android implementations since they'll have vertical integration from hardware to software. We don't know how much Nokia will benefit from their new relationship compared to the other partners. In either case, Google and Microsoft seem to want to follow Apple's complete stack(and don't forget RIM is still in this too who also have a complete stack and a new QNX rtos. Outside of the US, RIM is doing very well) or at least offer the complete stack as an option to customers.

I wanted to edit because of this but you've described it perfectly. The problem is the MMI purchase. If MS is unable to make Android prohibitively more expensive than WP7 then there is no way they can defeat Google as than alternative.