Since many average consumers don't even know Windows Phone 7 exists, Microsoft has been trying to build buzz by setting up kiosks in shopping malls. I had a first-hand experience at my local mall in Maryland, and it provides some insight into how difficult a job Microsoft has. Our family stopped by the Windows Phone 7 kiosk one night and looked at the phones. The staff there was very knowledgeable about the phones they had available for demo. Microsoft is definitely trying hard to make the public aware of their products.
Microsoft's booth had a promotion where you could win a phone instantly by scanning a ticket. In a stroke of apparent luck, my son won that day's prize phone. It was the AT&T version of the LG Quantum, a handsome horizontal-slider phone with a very usable keyboard that retails for $400. That's a mighty nice thing to win, right? Well, not so fast. The phone only costs $100 with a two-year contract, and of course you'll need to activate an AT&T account and pay at least $55 a month for service. That price assumes you can live with a measly 200-MB per month data plan. AT&T doesn't offer a penny of discount for customers who bring their own equipment (T-Mobile does, for example), so a "free phone" doesn't sweeten the deal very much.
Then there is the software side of the equation. Windows Phone 7 is pretty and seems quite functional, although I think the folding tile animations are annoying and make the phones seem slower than they really are. But for many users, the cost of switching from their current phone's ecosystem to a Microsoft ecosystem will be more than they can bear. iPhone, Android, and BlackBerry users already know how to use the apps on their phones. The Windows Phone integration only works smoothly if you buy into all the Microsoft cloud services that underpin it: Hotmail, Bing, SkyDrive, etc. Users who've already put their heads in an Apple or Google cloud won't want to face the anguish of moving their data.
The undisputed financial winner in the Phone Wars, at least in the near term, is Apple. AT&T users can't just switch to Verizon and keep their old iPhone; they have to buy a new iPhone that works on Verizon's CDMA network. That's money in Apple's pocket. Perhaps we'll see a glut of used GSM-based AT&T iPhones being sold on secondary markets like eBay, but Apple is no doubt working on an iPhone 5 to make those old phones look unattractive to Apple fans.
I don't think there is any sort of intentional ploy by Apple, Google, or any of the carriers and device makers to pull a "cut off their air supply" on Windows Phone 7, because frankly it's not a big enough concern for the other players to worry about right now. Instead, Microsoft just got caught in an unfortunate crossfire. Between the fall of iPhone exclusivity and the rise of Android, they just can't get the kind of traction they need to make a dent in this market. I don't see that changing in 2011, no matter how much money Microsoft plows into it.