Not late to the game...
But Microsoft was actually ahead of its time. It had pioneered (through Windows CE) the Auto PC (Ford's Sync being a spiritual successor to this), the first "PC Companion" through the handheld PC, which would later, thanks to Palm, be rivaled by and reformed into the Palm-size PC/Pocket PC that we still continue to see integrated into the "Windows Phone" today. New name, same product. This is just a small sample of many products Microsoft introduced too early when the market wasn't ready. The problem was that most of this innovation occurred during the mid-to-late 90's when even tech and business consumers didn't see the benefit of mobile computing, while mobile networks weren't ready to support cheap, high-bandwidth data with good coverage. (Arguably they still can't, *cough*AT&T*cough* in the US). Regardless of the reason, the truth is that after consumers rejected Microsoft's attempts to enter the mobile market early-on, Microsoft lost interest in continued R&D and assumed the PC would continue to drive the tech industry through the decade and beyond since that was the only area seeing strong growth at the time. That false assumption lost them nearly a decade of market dominance in other now-prospering industries and markets. Microsoft could have yielded iPhone-like control over handsets today, had they not become complacent with the smartphone being a high-end, high-priced PDA with phone capabilities, only for those who didn't want/need a Blackberry (which was a niche product in its infancy at the time).
Where Microsoft was late to the game was in realizing something that has driven Apple philosophy since the 80's: given enough time to penetrate the market, consumers will adopt new technologies. Microsoft has forever lived in in the 90's, where more than half the population (of the US, anyway) didn't have a mobile phone, possibly owned one computer (a desktop at home, or they didn't own one and used their computer at work), had dial-up Internet since content was small and cable/DSL was expensive, only available in cities, and not considered necessary; and most didn't have any other electronic mobile devices, except possibly a portable CD player. Today, that couldn't be farther from the truth, as mobile penetration reaches 80% of the US population, and almost everyone under the age of 35 has an audio player (usually an iPod/iPhone) and at least 2 computers (at least one being a laptop), the consumer (market) could arguably rival businesses in technology use and consumption. Of course, I'm not talking about industrial apps and whatnot, but people today spend thousands of dollars more on technology per year than a decade ago (regardless of what you consider to be the start of a decade... ;) )
With all that said, my point is that Microsoft should have stuck with a strategy to enter these new markets if they wanted to be more successful today. Giving up is what led to their current state of failure in these areas. As long as they would have recognized growing consumer adoption of technology over the past 10 years, and responded accordingly they would have been able to maintain and grow their presence in this market. People never forget the past and while corporate culture has changed since 1999 (mostly since the Secure Computing Initiative, and moreso after the Vista debacle) it may take another 10 years for the market and for consumers to see Microsoft in a different light than the money-hungry monopolistic empire that the DOJ portrayed in 1999. Microsoft's only hope now is to win back consumers through honest, hard work. They need a line of good products in their online services (Live) division, mobile division (Windows Mobile), and entertainment division (Xbox). While they spent the past 20 years sacrificing the growth of all three of those divisions in the names of Windows and Office, it's time to realize that strategy is only viable for so long until you sap them dry. And now that the mobile division has been successfully sapped dry with the aid of Apple, and the online division because of Google; they're starting to realize the same fate is in line for the Xbox because of the PS3 has finally come into its own with a $299 model that can compete with the Xbox on price and game selection (while widespread RRoD and E74 errors provide more motivation to avoid the Xbox). I have a friend who just got an RRoD. He's out of warranty and Microsoft wants $99 to fix it. Instead, he's actually considering scrapping the Xbox 360, his still-active Live subscription, and his whole game collection to move to the PS3. That's how bad it is for Microsoft's entertainment division. Microsoft, this is your chance. Start pouring some R&D money into the Xbox, Windows Mobile, and online services (Bing is a good start) and the next decade might not be that bad for you. Otherwise, you might just have to throw in the towel come 2019. And that's a sad fate for a company that was almost single-handedly responsible for putting the personal computer on every desk and in every home.