Microsoft to spend upwards of $500 million for Windows Phone 7 launch, but will it be enough?

Mon, Aug 30, 2010

Analysis, News

It’s hard to believe that by the time Microsoft gets around to releasing Windows Phone 7, the iPhone will almost be 4 years old. Moreover, if and when Microsoft’s last gasp effort to reclaim any sort of relevancy in the smartphone market actually pays off, Apple will be just about ready to release the iPhone 5. And when you factor in the growing popularity of Android devices, it’s pretty clear that Microsoft is in a desperate game of playing catchup.

Having failed to evolve over the past few years, Microsoft has taken a backseat while watching its share of the smartphone market slide into irrelevancy. Now poised to enter the fray with Windows Phone 7, Microsoft is facing its toughest battle to date. Microsoft’s Windows monopoly has no bearing or influence in the smartphone market, and with users clearly enjoying their iPhones, BlackBerrys, and Android devices, it’ll take a lot more than Microsoft’s marketing muscle and deep bankroll to ensure a success for its smartphone entrant. Still, that won’t stop the folks up at Redmond from trying.

Kim-Mai Cutler, in a guest piece for TechCrunch, writes that Microsoft is prepared to spend upwards of a half billion dollars to put Windows Phone 7 on the best footing possible when it launches in a few months. Not only does Microsoft have a large cache of money earmarked for advertising, but it’s also planning on using its abundant cash resources to reach out to developers and bribe, uh.. persuade, them to code for the Windows Phone 7 platform.

The company could spend a half-billion dollars or more in marketing costs and payments to developers and handset manufacturers to subsidize the expense of building phones and apps, so that the Windows Phone 7 ecosystem is well-seeded at launch.

Jonathan Goldberg, a telecommunications analyst at Deutsche Bank, estimates that Microsoft will spend $400 million on marketing alone for the Windows Phone 7 launch. That doesn’t include the millions it has already committed to pay for “non-recurring engineering” costs that help offset development costs for handset manufacturers.

Meanwhile, another source reportedly familiar with Microsoft’s launch plans notes that all told, Microsoft may end up spending well over $1 billion in Windows Phone 7 related activities, with half of that figure devoted to advertising alone, and the rest to an assortment of development costs such as “convincing” developers to give WP 7 a try.

Indeed, Microsoft has in the past already contacted a number of high profile and successful iPhone developers asking them to port their apps over to a new platform. While it’s not clear how much Microsoft is willing to folk over, one anonymous developer who respectfully declined Microsoft’s offer said that it involved quite a substantial amount of cash.

The problem with Microsoft’s “let’s pay developers” strategy is that any successful developer on either the iPhone or Android platform is undoubtedly earning a nice monthly salary off of app sales already. That being the case, an offer to cross develop for Windows Phone 7 would have to be especially and unusually lucrative to even get developers to think about it.

And for a company that has historically boasted about its relationship with handset manufacturers, the $15 licensing fees for Windows Phone 7 seem quite high when measured against Android which is, of course, free. So even assuming that WP 7 is comparable to Android, it’s hard to fathom a scenario where handset manufacturers will be jumping at the chance to pay Microsoft licensing fees when it can use Android instead and save a buttload of cash in the process.

But putting things into perspective, Cutler points out that the 1-2-3 punch of effective Droid advertising from Google, Verizon, and Motorola totalled out at $100 million. If Microsoft is willing to spend 5x that amount on advertising alone, things are bound to get interesting. At the very least, people will be familiar with Windows Phone 7 – and given Microsoft’s near absence from the smartphone market as of late, that’s a lot better than nothing.


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