As my colleague Mary Jo Foley explains,. Google has been blocking them all along the way.
Some of Google's complaints in the past have sounded reasonable to a degree. For instance, the fact that Microsoft's app allowed video downloading might have been great for users, but Google is reasonable to protect video copyright holders. Microsoft caved on that feature pretty quickly, but there's something not quite right about Google's other complaints.
Google's behavior sounds a lot like Microsoft's behavior from the 80's with MS-DOS. Microsoft was notorious for relying on undocumented features of DOS in their own software, putting them at an advantage over competitors. This was widely known in the business, but was demystified by Andrew Schulman with his 1990 book Undocumented DOS (ironically, this is a Google Books link). In fact, Google's behavior is more problematic since they are actually preventing Microsoft from making the app they want.
I'd like to assert up top here that I take it as a given that Microsoft actually wants to have a YouTube app for Windows Phone that has all the same features and capabilities as the native YouTube apps written by Google for iOS and Android. Microsoft says that Google now tells them to write it in HTML5. There are several 3rd party YouTube apps for Windows Phone; most are simple HTML shims to the YouTube mobile site. This works well enough, but Google defines the entire experience, and that may not be the best way to do it for Windows Phone.
Google also complained, according to Microsoft, about their ad serving:
Google claims that one problem with our new app is that it doesn’t always serve ads based on conditions imposed by content creators. Our app serves Google’s advertisements using all the metadata available to us. We’ve asked Google to provide whatever information iPhone and Android get so that we can mirror the way ads are served on these platforms more precisely. So far at least, Google has refused to give this information to us. We are quite confident that we can solve this issue if Google cooperates, but fixing Google’s concern here is entirely within Google’s control. If Google stops blocking our app, we are happy to work with them on this, entirely at Microsoft’s expense.
Google hasn't spoken up publicly about this yet, but if it's true then they are obviously stonewalling.
Perhaps Microsoft is just whining about targeted persecution. Surely Google enforces these rules against all the programs that access the YouTube service, right?
Well, no. Metrotube for Windows Phone 8 goes a lot further than an HTML shim and customizes the experience. In fact, Metrotube, by Lazyworm Apps of New Zealand, appears to be everything that Google won't allow Microsoft to do: It's obviously a native app, it doesn't serve ads and it allows video downloads. I've asked Lazyworm if Google has ever hassled them, but haven't heard back yet (it is night in New Zealand). Metrotube is also in beta as a Windows 8 app.
In fact, Metrotube (a video of which is embedded below) is a pretty cool looking app! I'd suggest that Microsoft buy these guys out, but that would probably guarantee that the app would be blocked by Google.
It all adds up to Google's arguments not making sense. Considering various governments are investigating Google for antitrust violations in other markets it's rather bold of Google to restrain trade in mobile apps this brazenly.