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Huge Launch Campaigns Affect Microsoft's Bottom Line

Notice how heavily Microsoft's been advertising lately to raise awareness about Windows 8, Windows Phone 8 and the Microsoft Surface? You'd have to be boycotting TV and the Web not to see the campaigns.

Microsoft's bean counters certainly noticed. In the investor call on Thursday to discuss earnings for the three months that ended in December, the new general manager of investor relations, Chris Suh, made clear how significant those ad buys and other marketing investments are to Microsoft's balance sheet.

"Operating expenses grew 10 percent to $8.0 billion, primarily related to marketing for product launches," Suh said, according to a Microsoft transcript of the call. Slightly more detail on how much Microsoft spent marketing Windows 8 and Surface is provided in the company's 10Q filing with the U.S. Securities and Exchange Commission. Microsoft spent $592 million more on sales and marketing expenses, mostly advertising, for the half compared to the same period in 2011, and $420 million more on those costs in the most recent quarter compared to the year-ago period.

Microsoft's overall net income for the quarter was $6.4 billion, so spending hundreds of millions more on launch marketing is a significant investment.

Critics could argue the money was wasted. After all, the global PC market not only didn't get a bump from Windows 8 in Q4, demand actually fell compared to the same quarter a year ago. Meanwhile, Windows Phone sales did quadruple (from a tiny number in the comparable quarter.)

Surely Microsoft can't be as thrilled with the quarter as it's saying it is, but the company can and does play a long game. Awareness investments are setting up customers for the coming months when more PCs with touch capabilities and better prices are available through more channel outlets. Microsoft CFO Peter Klein pretty much acknowledged that's Microsoft's plan and expectation: "It's early days and an ambitious endeavor like this takes time."

Microsoft hasn't been advertising this much in years, but the company hasn't had as much to tell consumers about since Windows 95. Investors may not love the amount Microsoft is spending on marketing, but then again, investors haven't liked much about Microsoft since 1999.

Hopefully the added air cover in consumer advertising is also spurring more business conversations for Microsoft partners.

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Posted by Scott Bekker on January 28, 2013 at 11:58 AM


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