Thursday, July 16, 2009

Microsoft Retail Stores

Microsoft has announced that they will be rolling out new retail stores, some in proximity to Apple stores, to create a physical presence in the consumer space. If Microsoft's aim is to copy Apple's, I think that they will be in for a very rough ride.

Apple's brand image is one of high quality which is the reason why they choose "highstreet" locations. The brick and mortar stores reflect their brand and the entire experience is designed to make you feel special. And Apple's stores generate a profit and are self-sustaining. In fact, they were the fastest chain to hit $1 billion in sales.
Microsoft, while running the current Laptop Hunters ad campaign, is creating a low cost, every day commodity brand, more like WalMart, less like Crate & Barrel. So opening stores in high street areas, if that is their intent, is incongruous with the image that they are brandishing. The other issue that Microsoft will have is how are they going to generate revenue at their stores? Their only mass market hardware are accessories. They aren't going to sell millions of Windows 7 at retail - there just isn't enough there to excite consumers. Not only that, but because people view Windows as a commodity, it's very difficult for them to sell a lot at retail like they did with Windows 95 that we perceived as something completely new and different. They spent $6 billion to develop Vista that was commonly panned and uninstalled and with the way Apple positioned Snow Leopard's pricing, it probably affected their ability to charge full tilt

They certainly won't sell hardware, at least not directly because of its OEM customer base. Maybe they will sell all kinds of retail software titles and games. But those dedicated stores pretty much died in the 90's. Apple offers something you can't get anywhere else. Microsoft has to do the same if they want to stand out.

I'm not privy to their strategy but I hope it is a good one. Even though I'm an Apple fan, it's great to see an American business investing in America. Millions of people depend on the Microsoft economy. My concerns for the company are that it may not generate self-sustaining revenue or will it be a drag on the balance sheet. Microsoft's appetite to buy businesses, competition, and invest in all kinds of products that don't pay for themselves will eventually hurt the company.

It is rumored that the only two divisions that generate positive revenue and carries the company are its Windows and Office products. Windows continues to see erosion, particularly in the consumer space hence the ad campaign and announcing stores. Office is also taking heat from Google, to IBM, to iWork, to open source alternatives, to people who stick with the old version because the new version does not offer enough value and the unfamiliar ribbon interface. Now Microsoft is going to offer a free, online, scaled down version of Office. You can bet that for the average home user, this will be more than enough for everyday purposes. I bet advertising is going to have to make up for lost revenue in box sales of Office.

So if more of Microsoft's offerings are moving to the cloud like Google, why are they investing in retail store fronts like Apple?

Maybe they have such a futuristic experience planned that people will want to go into to really be wowed. I just haven't seen that cohesive thinking out of Microsoft lately except when it comes to Bing - and you can't ring that up at the checkout counter.

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