The 'Net was aTwitter last week after Microsoft revealed an October debut for Windows 7. All the pundits weighed in on the software maker's next big OS. For about five minutes. Then Palm unveiled Pre, Apple rolled out iPhone 3G S, and suddenly it was "Windows what?" And that's why Redmond must, and will, make a major acquisition sooner rather than later. It's the only way it can get back in the game.With Apple, Google, and even Palm hogging the limelight in tech's showcase markets--mobile, search, the cloud--Microsoft appears destined for, if not out-and-out irrelevance, anonymity. It's threatening to fall into IBM territory--a staid, large-cap maker of behind-the-scenes glueware that keeps the machinery humming but that no one, save for hard core IT professionals and stock analysts, cares all that much about.

That's fine for IBM; that's how it made its bones and it's where, along with outsourcing services, the company still makes the bulk of its money and it's chugging along with recession-defying performance. But CEO Sam Palmisano appears quite happy with the fact that nobody outside of Armonk or Davos knows who the heck he is.

But it's not good for Microsoft. Despite products like Windows Server and initiatives like .NET (can anyone, anyone, to this day really define that), Microsoft is not a dominant enterprise player in the manner of Oracle, HP, or Big Blue. 80% of its operating income and almost 60% of its revenues derive from just two desktop products--Windows and Office. (Forget Bing, it's a Live Search reboot with a built-in virtual porn theater.)

And that's a big problem. Howard Stern might still be the King of All Media, but the desktop is no longer king of computing. It's all about the cell phone now (or "mobile", as standalone noun, for you Brits out there). Calling, texting, browsing, buying, and most other online activities are moving to the smartphone, which is supplanting desktops and even laptops. A survey showed that younger individuals now use text more than e-mail to keep in touch (d'uh!).

Trust me when I say we're only a couple of years away from cell phones that can run a dozen apps and power a full size keyboard and monitor via a dock. When that happens, kiss your desktop goodbye forever.

This is a car crash-in-waiting for Microsoft because its share of the mobile OS market is well south of the Mendoza Line. And I don't see much room for improvement for Windows Mobile given Apple's dominance in the U.S., the pervasiveness of Symbian abroad, and the emergence of new competitors like Google Android.

As for PCs, it appears what's left of that market will be controlled by smaller form-factor "netbooks" that aren't a great fit for Windows. Meanwhile, Google is bringing Android to netbooks, and Linux has a strong toehold in the ultra-low cost segment--especially in key, emerging markets where most of the growth is and where price is everything. Windows sales slipped 16% last quarter, in part due to the netbook craze.

Microsoft will release a version of Windows 7 for netbooks, but unless it plans to give it away it's going to have a hard time competing with open source. There's not much room for a high margin OS in a market where the whole kit and kaboodle can be had for about $200. (And at the high end of the notebook market, MacBooks aren't getting any less popular).

Then there's the office applications market. Microsoft still dominates in terms of share, but sales have been falling fast in the consumer space--down a whopping 30% in the most recent quarter. The culprit is a deluge of cheap, even free, software that's raining from the clouds and does most of what the pricey Office suite does. That's good enough for most people.

And once consumers realize that free offerings like IBM's Lotus Symphony or Google Apps are pretty decent, they'll be more than willing to use them at work (haven't we already seen this in the mobile space?).

So what does the future hold for Microsoft? Try this: An also-ran in mobile, which, if it already isn't, will become tech's most important category; and just one among many players, not even primus inter pares, in what's destined to be a highly fragmented netbook/desktop fray.

The upshot: Microsoft could end up half its current size within five years unless it does something drastic. This is why you should expect a game changing acquisition from the company--it's got little choice, and it's sitting on about $25 billion in cash, cash equivalents, and highly liquid financial assets to get the job done.

Perhaps the M&A comes in the mobile space. Or, Microsoft could chase down Germany's SAP in the hope of becoming a full-fledged enterprise player. And Yahoo is still out there. Regardless, Redmond has to make a move, and it will.