Windows Phone 7 “spiffs”

Apparently, Microsoft is now offering resellers a $10-15 bonus, or “spiff”, for each Windows Phone 7 device sold. John Gruber doubts this strategy, saying “Obviously this isn’t sustainable in the long run, given that $10-$15 per phone is probably the most Microsoft could be making in licensing fees.”

He’s probably right that, with any non-trivial spiff, each WP7 device sold will lose Microsoft money — unless the Nokia deal includes some sort of kickback above and beyond the OEM fees, anyway. But if you doubt Microsoft’s willingness to buy its way into a competitive position, consider the Xbox programme. The first Xbox lost four billion dollars and manufacturing faults with the Xbox 360 cost another billion. Yet in 2011, the Xbox business turned $1.32 billion in profit, with more to come.

The risky strategy worked; Microsoft bought its way in. Against all the prevailing market wisdom at the time, Microsoft turned Sony’s entrenched PlayStation brand upside down to assume a comfortable second-place position in the global games console market. If Nintendo hadn’t implemented a brilliant strategy shift to mainstream markets with the Wii, the Xbox 360 would probably be number one.

Clearly, Microsoft has the stomach for long and expensive fights when it thinks there’ll be an eventual payoff. With a $233bn market cap and $56bn cash on hand, it has the deep pockets too. WP7 was late to the market, but it’s winning admirers nevertheless. I think, and I hope, that we’ll continue to see it grow.