Bloomberg reported yesterday that Microsoft will end up paying Nokia more than $1 billion to promote and develop Windows Phone 7 handsets, citing two unnamed sources said to be knowledgable of the terms of the agreement. Nokia's commitment to the platform is also long-term: the agreement lasts more than five years, according to the sources. The people also confirmed that the final contract between the two companies still hasn't been signed. For this reason many of the details and specifics are still not public.

Microsoft will be paying some money up-front, and giving Nokia a share of advertising revenue. It will also be paying for its use of Nokia's Navteq mapping services. Offsetting this, Nokia will in turn pay Microsoft for each license it ships.

On the face of it, this sounds like a lot of money. A billion dollars just to stop Nokia plumping for Android, in a deal that isn't even exclusive—Nokia will continue to sell Symbian handsets, and even the MeeGo-powered N950 will ship later this year. Nor is a this deal going to be a quick win for Microsoft, as Nokia's Windows Phone 7 handsets aren't likely to ship in volume—or possibly even at all—until 2012.

In the short term, this deal certainly favors Nokia. The company will still be spending money on Symbian development—the company is expecting to ship 150 million of the handsets in the next couple of years—but will be able to scale back this expenditure, as its operating system development costs are increasingly pushed onto Redmond. This, plus the cash infusion, gives the company instant savings.

But longer term, this deal should prove to be a big win for Microsoft. With each license estimated to cost around $15, recouping the $1 billion will require about 60 million licenses—Nokia handsets—to be sold. And this is a five year deal: it doesn't have to be an overnight success to earn back the money. Unless Nokia implodes and the entire venture is disastrous, that level of sales should be easily achieved.

Strategically, it's even more valuable for Redmond. The Nokia deal gives Microsoft access to a brand with significant market presence around the world (except the US), valuable mapping services, and strong hardware skills. Perhaps even more importantly, the deal has ensured that the biggest smartphone manufacturer in the world has gone with Microsoft's operating system, and not Android.

The sources speaking to Bloomberg said that two features were influential in swinging the deal. As already disclosed when the companies announced the agreement, Nokia felt that Windows Phone 7 offered a greater chance to stand out in the market—something that would be rather harder in the already crowded Android market. But the investment that Microsoft could make was also key, with the implication that Google was unable or unwilling to offer a simliar incentive.

For users of the platform, the length of the deal is also encouraging. Windows Phone 7's future is far from assured. Microsoft's mobile ambitions—for Windows, for tablets, and for ARM processors—are currently something of a mystery. The company brutally killed off the KIN when it was clear that it had failed to meet expectations, and there were concerns that the company would give Windows Phone 7 the same treatment if it failed to take off. But in signing up to a five year deal, it's clear that Microsoft is in this for the long haul, and will stick with the platform to ensure its success.

There are still risks to the deal. The platform could still bomb, Nokia's handsets may all flop, or Nokia may decide that MeeGo has more to offer after all. Microsoft may have made concessions to the Finns that will undermine Windows Phone 7 as a platform. And alienation of the other Windows Phone 7 partners remains a possibility.

How these risks will play out is at the moment anyone's guess: Nokia has said that they don't intend to jeopardize the platform (though they could) and devalue the other Windows Phone 7 manufacturers, so they're saying the right things—we now have to wait to see if they follow through.

A billion dollars sounds like a lot. But to solidify Windows Phone 7's position for just a billion dollars—a billion dollars that should be earned back over the life of the deal—and to prevent Nokia from going with Android, it's an absolute bargain.