Analysis of IT news

Saturday, February 14, 2009

Microsoft to open its own retail stores

News item: Microsoft plans to open its own retail stores chain

Analysis: If it's successful for Apple, then it's logical to see Microsoft follow. A lot of people wonder about the timing. On the one hand Microsoft is trying to cut costs so launching a retail store chain seems like a bad time. But on the other hand, considering the number of retail chain closing, malls are probably anxious to see anybody move in. Redmond should be able to strike good lease deals. Remember, Microsoft always thinks long term.

Now, contrary to Apple, Microsoft retail stores are less a sales channel than a marketing channel. Apple indeed sells hardware so they sell mostly through retail stores anyway. As a result, Apple makes a much better margin on the products it sells through its own stores. For Microsoft it's the opposite - except maybe for the Xbox and the Zune. Because they are mostly selling software, Redmond is right now enjoying the best deal they're ever going to get: they market to billions of consumers but sell at very low cost to a handful of PC manufacturers, leaving the latter go through the trouble of installing and supporting Windows. How do you think Microsoft gets a 80% profit margin on its two cash cow products? There's no way Redmond can make better margins selling Windows directly to consumers.

But Microsoft's focus here is to regain its mojo and coolness. Aside from the Xbox, Microsoft products have failed to generate any excitement for several years now - when they didn't become a PR nightmare like Vista. That's not a good thing in the long term, even if in the case of Windows where they have the market pretty much locked up.

Back in the good old days all Redmond had to do was to focus on nurturing relationships with a limited number of big influencers: PC manufacturers (starting with IBM), journalists, etc. If Microsoft managed to seduce them, consumers would blindly embrace new product Redmond released (remember Windows 95?). Small cost, huge effect. But this approach doesn't work anymore and now customers aren't automatically switching to Vista just because Steve Balmer said so - let alone buy a Zune or a Windows-powered phone. Ironically Redmond is now suffering from the same problem its competitors suffered a few decades ago: its products like the Zune might be good but it doesn't matter because 1) few people have heard about them and 2) it's not compatible [with all the peripherals available for the iPod]. So Microsoft now has to send the foot soldiers - in the present case an army of retail store reps - to sell the company to consumers.

The key question is thus whether Microsoft will be able to attract people to its stores and regain some coolness. Dell and Gateway tried to come up with showrooms and failed. Bringing a Wal-Mart guy on board to head the retail store division will sure bring some operational experience, but what about the sex appeal of the stores? Besides, stores alone aren't enough if the products aren't sexy. The success of Apple stores was that consumers *wanted* to know more about Apple products in the first place because they are sexy. They wanted to see the iPhone and the MacBook Air, even if they had no intentions of buying one. Can Microsoft do the same?


Post a Comment

<< Home