Microsoft over the past week has extended their “Smoked by Windows Phone” web campaign into an in-store contest. Offering a series of challenges, the store pits customer’s own devices against a Windows Phone. If someone wins, they are entitled to a fully-featured HP laptop valued at over a thousand dollars. Losers get a chance to swap their phone out for a free Windows Phone, in a second-place giveaway.

Ice Cream(ed) Sandwich

Sahas Katta, armed his Galaxy Nexus with a few Android 4.0 settings he knew of, and went into the store. Knowing Windows Phone’s infamous Live Tiles feature would be in play, he disabled the lock screen of his device. This is a new feature in Android 4.0, and one that Microsoft planners seem to have forgotten about (or simply weren’t aware of) when planning this contest.

That feature gave just about any Android 4.0 Ice Cream Sandwich owner, an actual clear edge in most of the contests. Since, most of the contests revolved around calling up Live Tiles on the Windows Phone side, one simply needed to place several widgets on the home screen to have information like weather, news, and sports appear instantly.

Mr. Katta was asked to load up weather in two different cities on his phone, as quickly as possible. And, the competition, he claims, began. While the Windows Phone was still being unlocked, Mr. Katta claims he declared himself the winner, since his home screen was instantly unlocked, and he had swiped to two Weather widgets, displaying weather in two cities.

The store abruptly claimed he immediately had lost however, insisting that the Galaxy Nexus could not display weather in multiple states. Mr. Katta had loaded widgets with two California cities, and was initially not told to load weather for multiple states. The store apparently played the Iraqi Information Minister tactic, and chose to argue with the reality right in front of their eyes. The phone could easily load weather for Redmond, WA as fast as it could for San Jose, CA.

Adding insult to injury, after the manager refused to reconsider the situation in Mr. Katta’s favor, the store asked him to take a photo consenting that he had, in fact, lost the challenge, by claiming he was “smoked by Windows Phone”. Mr. Katta says he declined, and left the story in frustration.

While the terms do state that “… (t)hat Microsoft’s decisions will be final and binding on all matters related to this Contest;” we cannot see any way Microsoft could fairly declare any other device a winner, should Mr. Katta be denied here. As such, the term was used in bad faith in our opinion.

We will give the Microsoft Store the benefit of the doubt, the full terms of the contest do appear to point in the direction of allowing a store to reject phones with modified firmware. It is possible, we contend, that the store simply did not want to tell Mr. Katta that they believed he was using a custom firmware on his phone, and chose to tell him some other grounds for disqualification. However, Android 4.0 does ship with the ability to disable a lock screen, straight out of the box.

Mr. Katta may have the last laugh though, this morning his musings on the debacle have spawned an Internet-wide firestorm. Clearly Microsoft should have known that Android 4 came with a new feature that other modern smartphones lacked, the ability to disable the lock screen.

The court of public opinion also appears to be going against Microsoft, adding stinging rebuke to the platform, in fact, by the end of today there may be more anti-Smoked-by-Windows-Phone articles out on the web than positive articles for the campaign.

Windows Phone Continues to Struggle

This comes as Microsoft struggles to sell Windows Phones. Microsoft has run several previous gimmicks to push Windows Phones, even going as far as to give them away for free with the purchase of $599 or more from Microsoft Retail Stores. At the time, the phone would have effectively been free considering the no-contract price tag.

Since then, Windows Phones have plummeted in value. Windows Phone 7.5-ready devices, running the latest Windows Phone OS release, have been seen on retailers such as Newegg.com selling for as low as $179.99 with coupon. That’s less than the cost of a Zune HD before it was pulled from market. Oh, and that $179 Windows Phone 7.5 unit we just used as an example was SIM unlocked.

Windows Phone 7’s success, or lack thereof, really doesn’t matter here other than for context purposes. As such, we are joining many other members of the mobile media this morning, and getting opinionated. Microsoft, it’s time to pay up, you owe Mr. Katta a laptop.

Microsoft could owe millions, literally.

The bad news for Microsoft is, anyone with a Galaxy Nexus, and took the challenge, could argue their way into small claims court and say they were at the store and won the challenge. If four thousand people do that in small claims court, that could wind up to be a $4,000,000 legal bill for the company, before legal fees get tacked on.

What really concerns us about the future of Microsoft, is that no engineer, even after this contest was announced, was willing to stand up and warn the company about this being a real and valid concern. Either they didn’t know, or were afraid to speak up.

Full disclosure: As the author of this article, I did meet Sahas Katta a few years back, but have no relationship otherwise, and did not contact him for comment. He has, however, several times backed up his statements on his blog. And, we can confirm from our own testing that his claims are in fact, correct. Android 4 can beat Windows Phone 7 in this regard. Hence, Microsoft probably owes more people that Mr. Katta, a shiny new HP laptop.

Microsoft was contacted at the time of the report, and we will follow-up with any statement they wish to provide.