The SDK, now in beta and expected to be released at the end of June, is the impetus, according to a Fortune magazine blog. It said a team of Microsoft engineers has been examining the SDK for opportunities.

"It's really important for us to understand what we can bring to the iPhone," Microsoft Vice President Tom Gibbons told the publication. He added that the focus is on what functionality Microsoft Office for Mac customers will need on the iPhone.

Third of Billion Dollars for Mac Software

Since the beginning of the Macintosh operating system, Microsoft has been a leading supplier of Mac-based office applications. Some observers speculate that the Mac business may account for a third of a billion dollars in annual revenue to Microsoft.

With this revenue stream, Chris Hazelton, an analyst with industry research firm IDC, said a Microsoft move into iPhone territory would be, at least in part, defensive to protect its position in Mac office applications.

He noted a recent announcement by Apple that the iPhone will support Microsoft Exchange for e-mail. If users send Microsoft Office documents as attachments, he pointed out, it's in Microsoft's interest to make sure everything works as it should.

"If someone had problems using an Office attachment on iPhone," he noted, "they could turn to, say, an open-source office application."

Other parts of the Microsoft empire are also looking at the iPhone. TellMe, a voice-recognition unit that Microsoft purchased, has reportedly been considering the device.

Microsoft's 'Coopetition'

Microsoft's development for the iPhone is consistent with its "coopetition" strategy, where it often cooperates with the companies it is competing against. As an example, Microsoft recently announced it would license Adobe's Flash Lite for its Internet Explorer Mobile browser in future versions of Windows Mobile phones.

Earlier this month, Apple CEO Steve Jobs countered blog reports that the popular Flash was coming to the iPhone. He said Flash technology was not ready for the iPhone. At an Apple shareholders meeting, he said Flash Lite is not powerful enough, and regular Flash, designed for full-featured computers, runs too slowly on the iPhone.

Thus Microsoft's licensing of Flash Lite offers that technology on mobile devices running Windows Mobile at the same time Apple refuses it on the iPhone. But Microsoft's coopetition applies to itself as well, since Flash competes with its own Silverlight technology.