Microsoft announced that it will open Microsoft branded retail stores. This raises interesting strategic questions.
First, the business environment:
The OEM market is huge for Microsoft.
Microsoft has 88% market share of operating systems in the U.S. Most people get their Microsoft operating system when they buy their new computer. The manufacturers decide which version of the operating system to install and ship. And as PCs dominate, MS OS obviously dominates. But it doesn't always go the way Microsoft wants. It is interesting to note that there has been a bunch of noise in the blogosphere about manufacturers shipping new machines with the "downgraded" XP operating system but counting them as Vista machines.
(Random thought for another post: It is interesting that Intel chips have a bigger impact on consumer choice than the operating system that is installed on the machine.)
Computer sales are slowing like everything else.
PC sales 6% worldwide in 2008 according to Gartner. But the all the gains were racked up in the first three quarters. In the Q4 08, sales dropped more than 10% compared to Q4 07. That means fewer versions of the Microsoft operating systems. So perhaps people will hold off buying new computers. Consumer direct sales of operating systems (upgrades) could grow as people try to make their computers last longer. Prices of computers continue to fall. Will the cost of the operating systems?
Microsoft doesn't have direct interactions with consumers.
MS software products are sold through manufacturers. Their software is sold through retailers over which MS has little control. With an increasing number of consumer direct products like Zune and Xbox, Microsoft may be looking for more control over the sales experience and the presentation of its brands.
Microsoft's Solution = Retail stores
Retails stores could be seen as a form of brand marketing rather than a distribution play.
Apple's highly successful stores were primarily about distribution. And as a strategy, it worked. For Microsoft, retail stores as a distribution strategy makes less sense.
In a ComputerWorld article by Preston Gralla, he writes: "Seattle Times blogger Benjamin Romano has more details. He interviewed Microsoft President of Entertainment and Devices Robbie Bach, who compared Apple's stores to what Microsoft's will be:
'Apple's approach was about distribution. People forget that when they entered their stores [in 2001], this was quite a while ago, they didn't have distribution for Macintoshes, so they created their own distribution.
'We have plenty of distribution. These stores for us are about building our connection to customers, about building our brand presence and about reaching out and understanding what works and what improves the selling experience.
'So Apple you would think of as a volume distribution play. You should think of ours as much more of a brand and customer relationship investment more than anything else.' "
This has to be about Window 7.
Microsoft is releasing it Window 7 soon and needs that product to be far more successful than the Vistas launch. They can't risk a repeat with Window 7. So by definition the launch must be different. Microsoft was reportedly a bit puzzled about why Vistas wasn't better accepted by consumers. In focus group environments consumers really like Vistas, but in the real world, adoption was more difficult. Microsoft seemed to blame this on "unfair" media coverage. But perhaps it was a bit more complicated than that. Vistas is/was expensive. It is a memory hog. Windows XP, which was pre-installed on most everyones' machine, was running fine. So why pay several hundred dollars to upgrade to a new operating system with a few cool new features?
Will retail stores help or hurt the brand?
I don't have much of a desire to have more "experience" with Microsoft products. Dealing with the headaches they create at work seems enough. What kind of brand experience will they create? Apple is hip and cool, very mod. How do you reflect the Microsoft brand? Perhaps a key feature could be the Simulated Software Crash. It could be fun. Every 45 minutes they could turn the lights off, force customers to put down merchandise, clear the store of customers and force everyone out outside and then reopen. When they reopen the sales people could forget all the conversations they were just having.
Some think Microsoft retails make sense, like Joe Wilcox at Apple Watch, but he also raises the issue of what the stores will be like.
It seems to me that the challenge is getting people into the stores.
Why would I go to a Microsoft store if it isn't to repair my PC? What exclusive products will they have? What can I find there that I can't find at Best Buy for less cost?
What lessons can Microsoft take from Sony and Gateway Country Stores?
Didn't Sony start retail stores for brand reasons? I don't think you could call the Sony stores a retailing success, but perhaps that wasn't the point. It is about the brand lifestyle no doubt as they call the stores Sony Style Stores. And Gateway wanted to create a direct channel to deliver their unique brand to consumer face to face. The NYTs wasn't convinced it is working.
This will be interesting. I can't help but think of Discovery Stores that sought to build brand and experience while selling some products. Retail stores as a brand strategy is an expensive proposition. But if you are Microsoft, and you have the money, perhaps you view the retail loses as an investment in the brand. Eventually, somewhere, Microsoft will need to see a sales increase. Stay tuned.
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