It’s no game: Microsoft improving Xbox Live on phones

Microsoft(s msft) today announced new Xbox Live features that will appear on Windows Phone 7 handsets this coming fall. The news was shared at Gamescom 2011, a gaming event taking place this week in Cologne, Germany. An additional 14 new Xbox Live titles for Microsoft’s smartphones were also introduced as the company continues to spotlight the Xbox Live gaming platform as a unique feature compared to handsets running on the Apple iOS(s aapl) or Google Android(s goog) operating systems.

The differentiation and expanded functionality are smart strategies as Microsoft says 70 percent of all Windows Phone 7 handset owners have downloaded an Xbox Live game to their smartphone. There are other unique and improved features in the upcoming Mango software update that have already impressed me as well. Some of those pertaining to Xbox Live have already been announced, such as faster navigation to games, interactive avatars and unified communications between Xbox Live contacts on both the smartphone and Microsoft’s Xbox game console.

The functions coming this fall will add:

  • Avatar Awardables. These are wearable achievements for your Xbox Live avatar; starting to first appear in new games this fall.
  • Game Add-ons. Just like on the Xbox Live console, these are in-game purchases for extra items, new levels and other downloadable content, purchased directly from the smartphone.
  • Parental Controls. The first rated M (for Mature) game on Windows Phone 7 arrives this fall: Splinter Cell: Conviction. More are sure to follow, so Microsoft is adding parental controls to limit what kids can and can’t do or see in Xbox Live on the phone.
  • Fast Async. Details are sketchy, but Microsoft says this is part of a new gaming service that will offer a faster multiplayer experience for turn-by-turn games.

These new Xbox Live functions show that Microsoft is continuing to plug the gaming features as a key value-add for the Windows Phone 7 platform. While all four are solid, the in-game purchases could appeal to third-party game developers as an additional revenue source over and above the cost of the game itself.

And overall, the new Xbox Live features combined with the general Mango improvements, tell me that despite a slow sales start, it’s too early to count Microsoft out of the smartphone race. There’s not enough here to challenge Apple or Google for the no. 1 or 2 spot, but Microsoft continues to improve its chances at becoming a solid No. 3.