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Thursday, August 26, 2010, 07:15 pm PT (10:15 pm ET)

Microsoft to spend over $500m to catch up to iPhone, Android

Marketing costs for Microsoft's Windows Phone 7 launch will add up to more than half a billion dollars as it re-enters the smartphone market, a new report claims.

According to Kim-Mai Cutler, in a guest post on TechCrunch, Microsoft is prepared to make up for lost time in the smartphone market with an expensive marketing push.

Jonathan Goldberg, an analyst at Deutsche Bank, estimated that the Redmond, Wa., company will spend at least $400 million on marketing the Windows Phone 7 launch, which should come before the end of the year. In addition to marketing costs, Microsoft has already agreed to subsidize handset manufacturers' "non-recurring engineering" costs.

“This is make-or-break for them. They need to do whatever it takes to stay in the game,” said Goldberg.

Microsoft executives told Goldberg during a recent visit to company headquarters that the company, carriers, and manufacturing partners, would spend "billions" of dollars in the first year on marketing and development of Windows Phone 7. Another source estimated a $1 billion price tag for the launch, with half of it going to marketing.

$500 million is roughly the equivalent of Apple's entire advertising budget for its 2009 fiscal year. In its 2009 Form 10-K filing to the SEC, the Cupertino, Calif., company listed $501 million in advertising expenses. Microsoft's fiscal 2009 advertising budget was $1.4 billion.

According to the report, Microsoft, in order to attract third-party developers to its platform, is offering revenue guarantees and other financial support. The company will have an uphill battle against Apple and Google, which already have well-established ecosystems for third-party applications.

At Apple's annual developer conference in June, CEO Steve Jobs announced that over 5 billion apps had been downloaded from its App Store in just 2 years, earning over $1 billion in revenue for developers.

Microsoft remains undaunted. Greg Sullivan, senior product manager at Microsoft, says the company is taking a "long-term view" of the market, since "it's still in the early stages." Anand Iyer, also a senior product manager, asserts that there is strong interest in Windows Phone 7, noting that downloads of the company's development tools have exceeded 300,000.

In July, Microsoft pulled its KIN line of youth-oriented phones after just 48 days on the market. In an official statement, the company outlined its plan to "focus on [its] Windows Phone 7 launch." The KIN team was folded into the Windows Phone 7 team.

During a ReMIX Microsoft conference in France, the company referred to IDC data to estimate total sales of 30 million Windows Phone 7 devices by the end of 2011. In comparison, Jobs set a goal of 10 million iPhones sold in 2008, the first full calendar year of availability for the smartphone.