How Much Did This Really Cost Microsoft?

It's impossible to come up with a correct figure, because we can never have all the information required to compute that. I can show you a list of the items:

There is no way to assign a valid number to the third and fourth items.

People ask for my estimate on the ad revenues that Hotmail brings in each day. On a live interview with a Seattle radio station, I jokingly said some huge numbers, "I don't know, half a million, quarter of a million" and they moved on before I had a chance to be realistic. Oh well.

Hotmail has 55,000,000 email addresses, but Microsoft estimates that there are only about 20,000,000 actual users. For the sake of estimation, let's assume that each of the 55,000,000 accounts are checked, on average, once every two weeks. Let's further assume that in checking the email, two ads are shown on average, and that Hotmail receives $.001/ad shown. That would add up to $7800/day revenue. That's not chump change, but it's not half a million, either :)

Nobody can know for sure exactly how much money this episode has cost them, but certainly the lost future revenue is larger than the immediate tangible losses.