Microsoft needs to learn how to lie, cheat and steal for Windows Phone 7 to have a shot at competing with Apple iPhone. The Redmond giant also has to get a clue about the smartphone space. It's just painful to watch a great software company lose its way.Slideshow: 10 Ways Microsoft Tried and Failed to Rule MobileFirst, the lying: Consider the creepy case of device encryption. Windows Phone 7 is dead in the water because it doesn't support on-device hardware encryption. Most Windows Phone 7 owners won't be able to access corporate data since many company policies require hardware encryption in order to hook up with Exchange ActiveSync. That's right, no corporate e-mail."True, not every Exchange server is configured to deny a connection to unencrypted devices, but in this day and age, you'd be hard-pressed to find an enterprise-class Exchange server that allowed it," writes Eric Knorr, editor-in-chief at sister site InfoWorld, in his blog, adding, "No work e-mail? Fuggedaboutit."Wait a minute, iPhone models prior to the iPhone 3GS didn't have hardware encryption yet were able to access company e-mail just fine\u2014that is, until iOS 3.1. came out and enforced the encryption rule. Even today's Android phones, which lack hardware encryption, can access corporate e-mail.So what gives? The previous iOS 3.0 running on iPhones without hardware encryption (iPhone 3GS was the first to have it) simply didn't address the security policy options of Exchange. For lack of a better word, the iPhones lied to the Exchange server to access data. My guess is that Android phones do something similar.But Microsoft Windows Phone 7 can't really trick Microsoft Exchange server. That's like lying to yourself.Cheating and stealing:The crazy thing about Windows Phone 7\u2014apart from the game-killing inability to access corporate e-mail\u2014is that it lacks basic functions of the iPhone, such as cut-and-paste, multitasking, and HTML 5 support. These features have already proven themselves in the market, so Microsoft should have just taken them. Without these features, Windows Phone 7 looks woefully behind the times.While Windows Phone 7 has a beautiful, snappy user interface that rivals the iPhone's interface, unfortunately, Microsoft adopted some of the iPhone's worst traits. Windows Phone 7 has AT&T exclusivity and doesn't support Adobe Flash Player. (Read InfoWorld's Mobile Deathmatch: Windows Phone 7 vs. Apple iPhone 4.)Get a clue:So I'm at the Open Mobile Summit in San Francisco listening to Microsoft say that Windows Phone 7 is aimed largely at consumers. In a breakout session that followed, surprised mobile enterprise app developers lamented the news and even held out hope that Microsoft will change course."Unlike Apple, Microsoft knows the enterprise and can build support quickly," one developer said.But the bottom line is, if you're still building separate phones for consumers and the enterprise, you haven't been paying attention. Apple has demonstrated on every earnings call that people want their work and personal worlds to collide on a single device.It's arguably the biggest lesson Apple has taught the tech industry over the last three years, and Microsoft wasn't listening. Tom Kaneshige covers Apple and Networking for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline. Email Tom at email@example.com.