Microsoft today showed off the next version of its Windows Phone 7 software, code-named Mango, that includes 500 new features, including smoother integration with social-networking programs, built-in voice-to-text and text-to-voice support for hands-free use, and the ability to run one application while another is working in the background.

"We set out to make the smartphone smarter and easier," Andy Lees, president of the Mobile Communications Business at Microsoft, said at the end of a news conference in New York City this morning.

Internet Explorer 9 on Windows Phone 7

The software giant said Mango will be available this fall.

The challenge for Microsoft will be living up to the hype created prior to the announcement. Holding an event in New York and encouraging media attendance comes with expectations. And it stumbled early, with the video feed of the press conference bogging down and not loading for many Web watchers, greeting them instead with a screen with a bar slowly loading the video feed.

The company announced plenty of new features, including a version of Internet Explorer 9 for the phone. It introduced a program called Local Scout that offers hyper-local search results, based on a user's location, and recommends nearby restaurants, shopping, and activities. And it's created a new feature called Quick Cards, which provides a brief summary of relevant information and related apps when users search for a product, movie, or event.

Some of the other new features include: &149' Threads: Gives users the ability to switch between text, Facebook chat, and Windows Live Messenger within one conversation. &149' Groups: Lets users compile contacts in one place so they can see the latest status updates from the start screen and quickly text, e-mail, or instant-message the whole group. &149' Linked inbox: Puts multiple e-mail accounts in one linked inbox. &149' App Connect: Deepens the integration between apps and search so that applications surface when they are relevant to a user's Web search query.

Windows Phone has had a rough start. Launched in 2010, the mobile-phone software has yet to make any sort of dent in the leads held by Apple's iOS and Google's Android. Just last week, market research firm Gartner found that of the 100 million smartphones sold worldwide in the first quarter, only 1.6 million of them ran Windows Phone 7. Android, which had just 9.6 percent of the market a year earlier, soared to 36 percent of the market, while Apple held a 16.8 percent share.

No doubt that some of that has to do with the botched efforts to update the Windows Phone 7 software. When Microsoft sent out software to prepare phones for updating in February, some devices failed. Microsoft pulled the update to fix some bugs. But even the follow-up update crashed devices. Microsoft Corporate Vice President Joe Belfiore later apologized for the problems, citing a "lack of preparation."

Even little hiccups hurt. At Mix11, Microsoft announced that the popular game Angry Birds would come to the Windows Phone marketplace on May 25. But last week, news broke that the game would now ship on June 29.

Microsoft is hoping new devices will help right the ship. In February, the company announced a broad partnership with the world's top mobile handset maker, Nokia, to run Windows Phone 7 software on its devices. The first of those devices could roll out before the end of the year. And at the New York press conference, Microsoft announced three new phone partners: Acer, Fujitsu, and ZTE.

The quality of the phones created by those partners, as well as current Windows Phone 7 handset makers HTC, Samsung and LG, will matter as much, if not more, than the cool new features Microsoft announced. Apple has an ironclad grip on the high-end of the market, with its slick iPhones remaining the lust-worthy choice among folks willing to shell out big dollars. And Google's Android has secured the market for customers who aren't willing to shell out as much for a full-featured smartphone.

The current batch of Windows Phone 7 devices offer sleek looks and smooth software. But mobile-phone buyers haven't found them to be enough better than rivals to switch in big numbers.

So while the scores of new features that Microsoft demonstrated in New York look interesting, it's the handful of features that the devices don't have that often matter most. There's no Windows Phone 7 handset, for example, that has a forward-facing camera. That makes using a new video-conferencing Skype app, which Lees said would be coming to the platform soon, an audio-only experience.

Then, there's the matter of applications. Microsoft trumpeted that its marketplace now has 18,000 apps for users to download. The company proudly noted the number, saying the marketplace only opened for business in October. But users don't care about how quickly the store has grown.

They want the best apps possible. And having a wide selection matters too. And it turns out that Apple now has 500,000 apps approved for its iOS platform. Apple benefits from the network effect--the more folks who use iPhones, the more developers want to create applications for it. The Windows Phone platform isn't big enough yet to generate that sort of virtuous cycle.

The Mango release clearly has some whizzy new features that offer users the ability to get tasks done in ways they couldn't previously. And the addition of new hardware partners will add diversity to the handset lineup. But there was little in Microsoft's showcase to demonstrate how it will overcome the biggest challenge Windows Phone faces--Apple and Google.

Updated at 9:40 PT with more details and analysis.