Combining guesswork with analyst estimates, TechCrunch is reporting that Microsoft may spend as much as a billion dollars to launch and develop Windows Phone 7 in its first year.
Microsoft, as you'd expect, isn't commenting on that figure. But I think that number is low -- and needs to be a lot higher given the obstacles the Softies need to overcome to become a player in the smartphone market.
Think this through: Microsoft easily spent over a billion dollars over three years to develop and launch the now-defunct Kin phones, which were a tiny subset of its Windows Phone base. Microsoft spent an estimated $500 million to buy Danger; at least two to three years worth of salaries for the Pink team; however much it cost them to survey the tens of thousands of potential Kin customers/testers via "Project Muse"; and $240 million to write off the failed Kins.
Windows Phone 7 is of far more importance to Microsoft than the Kin phones were. And Microsoft has been working on its Windows Mobile 6.x successor for two-plus years so far. We've heard from the Softies that they've reassigned many of their "best and brightest" to develop the Windows Phone 7 operating system, reference designs, user interface and developer ecosystem. So that's two-plus years of salaries for thousands of Softies.
Then there are the salaries and time of individuals in other Microsoft divisions who are working with the Windows Phone 7 team to add Windows Phone 7 support for games, Office/SharePoint/BPOS, cloud services and development tools. That includes individuals in the Xbox/Xbox Live unit; Windows Live unit; Office unit; the Azure team; the Zune audio/video services folks; and Developer Division. (Windows Phone 7 is one of the very few Microsoft projects I can remember that brought together so many different teams to work on a single product.) I don't know how many people this represents, but let's say a couple hundred more salaries, just as a guess.
We know Microsoft is spending a boatload on evangelizing the coming Windows Phone 7. It has been holding code camps and contests. It has been giving away thousands of developer phones so individuals can build and test their apps. It has been offering selected developers cash guarantees to convince them to write apps for Windows Phone 7. It has been working with handset makers and carriers to get their ducks in a row for the coming launch wave. I don't feel comfortable hazarding a guess as to what this kind of outreach has cost, but I'm sure it's a substantial figure.
And we know Microsoft has lined up a primary ad agency to create a campaign/campaigns for Windows Phone 7. That agency is Crispin, Porter + Bogusky, the same agency that Microsoft hired to do its Windows 7 campaign (Seinfeld, Laptop Hunters, Windows 7 was My Idea, etc.). Microsoft spent an estimated $300 million on its initial Windows 7 ad campaign. Word was Microsoft spent $500 million over two years to market/launch Vista (!) So let's split the difference and guesstimate that Microsoft is paying Crispin $400 million for a TV, Web, print campaign for Windows Phone 7.
I'd say it's safe to say we're easily at or over $1 billion at this point. Microsoft made $62.5 billion in fiscal 2010. One of the company's biggest black eyes at this point is its lack of a credible and coherent answer to the iPhone and Android. A billion dollars would be a small price to pay to achieve this. Do you agree?