Q4 2011 wasn't exactly the start for Windows Phone 7 that Microsoft might have dreamed of, but the platform is far from out of the picture.

Windows Phone 7 lost some ground in October 2010 through January 2011 of this year according to market research firm comScore.  The platform dipped from 9.7 percent market share to 8.0 percent.

Other losers for the quarter were HP's Palm unit, which fell from 3.9 to 3.2 percent, and RIM, which dropped from 35.8 to 30.4 percent.  Apple held steady, beginning at 24.6 and closing at 24.7 percent.  

The only real winner was Android that soared from 23.5 percent to 31.2 percent.  In other words -- Android is eating everyone else's lunch, except for Apple that is hanging steady due to its legion of loyal fans.

Ultimately this is news we've known for some time now.  Other market research reports have reported Android already having passed RIM and iOS.  The interesting and much-talked-about aspect of this particular report is the implication that Microsoft lost even more market share.

While it's tempting to predict to buy in to the gloom and predict the demise of Windows Phone 7 (and some are indeed doing exactly that), the outlook for Windows Phone 7 is pretty good.  With arguably the market's most cutting-edge user interface (and a well-liked one by customers to boot) Windows Phone 7 offers a unique profile.  

With a partnership with Nokia in hand it seems destined for a large boost in market share, possibly to the number two position, as Nokia phases out Symbian over the next year.  Many have expressed skepticism of this given Nokia's poor performance, but history shows that Nokia is more than capable of lingering around, market share-wise, despite an anemic smartphone lineup in the U.S.  And while recently revealed details indicate Microsoft may have essentially "bought" that market share via a $1B USD payout to Nokia, at the end of the day it's where the market moves that counts.

The reasons for the dip seem pretty straightforward.  

First, there was a limited number of handset options at launch time compared to Android and WP7 handsets haven't landed on Verizon or Sprint.  In this regard Microsoft will continue to suffer for a little while as a Microsoft spokesperson says that the handsets won't hit America's biggest and third biggest (respectively) carriers until June 30.

Second, many buyers on AT&T and T-Mobile who might be interested in Windows Phone 7 handsets may be waiting to see how Microsoft's intense cycle of early updates plays out.  Those updates will add functionality like third-party multi-tasking and copy and paste.  Likewise they're likely waiting for issues like update compatibility and phantom data to be cleaned up as Microsoft and its hardware partners break in the platform.

Microsoft proclaimed earlier this year that it sold 2 million "units" of Windows Phone 7 (licenses, not handsets) -- a rather misleading figure as its true handset totals were far from that.  Likewise, some of the platform's critics have been quick to call it a tremendous failure.

Reality is that Windows Phone 7's true potential won't be seen until it lands on Verizon -- effectively in July -- at the least.  Like Android's original launch, the most serious test will come at about the end of the year.  If the platform can't gain ground during the Nokia phase-in and with a year of updates under its belt, then it's time to worry.  But chances are that Microsoft's position will improve -- even if its start was far from what it might have hoped for in its most optimistic dreams.