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"They basically want to outsource their OS development."

So ship stock Android, thus outsourcing OS development to Google. I agree with what SwellJoe says, haven't heard any credible explanation of how WP7 allows differentiation that Android wouldn't.

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Apart from the fact that Android is the most popular smart phone OS and WP7 is thus far not a success.

The first WP7 devices were released on October 21, 2010. Exactly how large of a success was Android in February 2008?

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