[By Duncan McLeod] Operating systems were all the talk last week at Mobile World Congress, the cellphone industry’s annual confab in Barcelona. Apple, Microsoft, Google, Nokia and others are engaged in a battle over whose software will run the next generation of smartphones.

I’m sure Bill Gates would disagree, but the fact is that Microsoft’s position, as leader in PC operating systems, has never really been seriously threatened.

Ever since the IBM PC was introduced in 1981, Microsoft has dominated the landscape, first with MS-DOS, and later with Windows.

Sure, it’s had challengers. Anyone remember DR-DOS, once owned by Novell? It got some traction, but never enough to pose a serious threat to Microsoft.

Or how about IBM’s OS/2 Warp? Though technically superior to Windows at the time, it flopped — Microsoft out-marketed the suits at IBM.

Not even Apple, with its arguably superior operating system, Mac OS, has managed to get more than a few percentage points of market share worldwide.

So Microsoft’s fight for survival in the market for smartphone operating systems has been fascinating to watch. The company has become increasingly irrelevant in the mobile operating system market, not something to which it’s accustomed.

That was until last week’s Mobile World Congress. One thing Microsoft doesn’t do easily is give up, especially not in a market this important — tens of millions of smartphones are sold each year, with the market expanding rapidly.

No, sirree. Microsoft’s larger-than-life CEO, Steve Ballmer, took to a stage at the Barcelona conference to unveil Windows Phone 7 Series, a complete rewrite of the company’s operating system software for mobile phones.

The announcement couldn’t have come soon enough. Windows Mobile, as Windows Phone was previously known, had become a bit of a joke. Modelled on Windows on the desktop, it felt like it belonged to an earlier era, not a world inhabited by Apple iPhones and Google Android devices.

Microsoft’s mistake was trying to cram the full Windows desktop experience onto a tiny screen, complete with menu systems that had to be controlled using a stylus.

But the company seems to have turned the corner. It’s ditched the stylus and rewritten the software so it looks modern. It’s integrated its Zune and Xbox Live services, allowing it to compete more directly with Apple.

Windows Phone 7 Series has pulled Microsoft back from the brink. Catching up to its rivals will be hard, though. Its application store — its online repository of programs designed to run on the software — is tiny next to Apple’s iTunes Store or even Google’s Android Market.

And the mobile operating system market is more competitive than anything Microsoft has had to contend with in desktop operating systems. Apple, Google, Nokia (with Intel), Samsung and a host of other manufacturers are pushing their own platforms.

Where Microsoft could be successful is in targeting the corporate market with its new phone software. The vast majority of companies worldwide run Windows desktops and Microsoft servers in their IT backrooms. By integrating the mobile experience with the demands of IT administrators, Microsoft can still take a significant share of the market.

If, by the end of next year, it hasn’t managed to claw back significant market share in mobile operating systems, I wouldn’t be surprised to see Ballmer make a play for Research In Motion, the Canadian company that makes the BlackBerry. He’s ruled out an acquisition for now, but playing the underdog is not a role Microsoft is used to.

Meanwhile, the level of competition will inevitably lead to incredible innovation in the smartphone market in the next few years. If you think cellphones are powerful now, you ain’t seen nothing yet.