Ballmer at CES

In January, Microsoft CEO Steve Ballmer used his keynote speech at the Consumer Electronics Show to show off the Xbox 360’s hands-free Kinect controller and Windows Phone devices, and announce that the next version of Windows would support ARM chip architecture-allowing the operating system to appear on tablets.

Late in 2010, Microsoft launched Windows Phone in an attempt to reinvigorate its smartphone efforts. In February, the company took its efforts to the next level by signing a partnership deal with Nokia, with the Finnish phone giant agreeing to make Windows Phone its primary platform. But Microsoft’s overall smartphone share nonetheless continued to erode.

In a bid to make Windows Phone more competitive, Microsoft set to work on a wide-ranging Mango update, with hundreds of new tweaks and features, which it pushed onto users’ phones by the fall.

By June, Microsoft also upped its forays into the cloud with the launch of the final version of Office 365, which combines Microsoft Office, SharePoint Online, Exchange Online and Lync Online into a common cloud platform costing between $2 and $27 per user per month.

Throughout the year, Microsoft also prodded adoption of Windows Azure, including a wide range of updates in December.

As part of a wide-ranging collaboration between the two companies, Microsoft integrated a number of Facebook’s social networking features into its Bing search engine, including the ability to “Like” certain Websites.

Throughout 2011, Windows 7 continued to sell well. Despite its growing interest in the cloud, Microsoft still depends on flagship software, such as Windows and Office, to power its overall revenue.

In the run-up to its BUILD conference in September, Microsoft whipped the curtain back from Windows 8, its next-generation operating system expected in 2012. Unlike previous Windows versions, Windows 8 features a tile-centric start screen designed for optimal use with tablets as well as traditional PCs. Windows 8 also embraces the Metro aesthetic that is increasingly dominating Microsoft’s products (including Windows Phone).

In October, Nokia unveiled its first next-generation smartphones running Windows Phone: the Lumia 710 and 800. Given Microsoft’s tight collaboration with Nokia, the latter’s efforts will be judged as something of a bellwether of the revamped Windows Phone’s overall success.

Once its Kinect hands-free controller became a sales success, Microsoft began looking for ways to expand its reach beyond Xbox 360 gamers to businesses and other entities interested in natural user interfaces. Microsoft is also repositioning Xbox 360 as more of a living room entertainment hub than a straight-up gaming platform.