Can Microsoft retail succeed where others have failed?

News.com Poll

Microsoft's retail foray
Should Microsoft go into retail?

Yes. It worked for Apple, it will work for them.
Yes. They need a place to show their wide range of products.
No. It's a terrible time to be going into retail.
Who cares? I still won't buy anything from them.

View results

Did Microsoft just serve up more fodder for the wits who direct Apple's lacerating series of Mac versus PC commercials?

On the surface, the decision to open a Microsoft chain of retail outlets sounds like a reasonable idea. With consumer spending plummeting, the competition for shoppers' attention is keener than ever. Why not hang out a shingle and give your wares top billing?

But this route has been fraught for technology companies who lost fortunes paying for under-used real estate compounded by bloated employee payrolls.

In the 1980s, IBM operated a network of retail stores. You could walk in and find out everything you wanted to know about IBM's products and services and do a deal on the spot. On paper, IBM believed it was a fine idea. In practice, however, it was an albatross. The stores were stuffy and had all the charm of hospital waiting rooms. What's more, you were limited to IBM products when snazzier stuff was sold by competing clone makers like Compaq or AST Research.

The stores lost hundreds of millions of dollars and IBM cut its losses in 1986 when it sold its leases to Nynex, which was one of the seven regional Bell operating companies. (Nynex also lost a fortune with the stores and wound up selling the entire kit and caboodle to ComputerLand five years later.)

CompuAdd, which started off selling its computers direct to customers, had a nice business going in the late 1980s and part of the 1990s. But its ambitions widened, and management decided to open a string of CompuAdd-only stores. By 1996, the company was bankrupt.

"Hey, wanna check out that cool Microsoft store down the block?"

Another direct seller, Gateway, also stumbled badly after opening retail outlets in 1996. At one point, the company's coast-to-coast retail presence numbered 326 stores. But this, too, ended in failure and Gateway shut all of its outlets in 2004.

So far, the exception to all this has been Apple. In 2001, the company opened its first stores in high-rent locations like New York, Chicago, and Palo Alto, Calif., and they did it right in the middle of the dot-com meltdown. Anybody who knew anything about retail was skeptical, not the least because Apple was wading into an entirely new market that had a rightful reputation for being a snake pit.

The gambit has worked beyond most expectations. In fact, roughly half of Apple's 32,000 person workforce is employed in the company's 251 retail operations around the world. The stores have served as a terrifically effective venue for attracting new customers. Management is fond of repeating in various forums that more people visit an Apple outlet in a given week then attended the Macworld conference.

"Who says we're not cool?"

But not even Apple is immune to the economy. During the company's fiscal first quarter, average revenue per store declined 18 percent, from $8.5 million last year to $7 million this year. Still, the company's outlets are operating comfortably in the black.

Watching all this from the sidelines, Microsoft finally decided to try its hand, despite this being what is arguably the worst economy since the Great Depression. Maybe this is the right time. They say there is always opportunity in periods of distress, and Microsoft has deeper pockets than most. The company has hired a Wal-Mart veteran named David Porter to direct its retail strategy and that's an encouraging harbinger. After all, when you're talking about retail, few match the success enjoyed by Wal-Mart.

Microsoft will need his expertise to smooth over the channel conflict that inevitably will crop up. Porter will also face another challenge he did not encounter at Wal-Mart. This is not the same as selling toothpaste or deodorant. Smart merchandising only goes so far when it comes to selling technology products. If you don't have the goods, all the advertising in the world won't be enough to compensate.

Maybe Microsoft's future retail network will get a boost from the debut of Windows 7 along with new and improved Zunes. But retail is about buzz, and if Microsoft can't burnish a reputation as an inventor of cool technology, Justin Long and John Hodgman, the actors in Apple's tongue-in-cheek Mac versus PC spots, may wind up with lifelong employment.

[Willy Wonker]

Wow. I really hope they find themselves as Gods. We must give you money. Alot of money. money money

[blusky08]

M$ doesn't have the likable or cutting edge image of Sony and Apple.
They also don't have the snazzy hardware.

M$ will fail miserably.

[Ian_Joyner]

"despite this being what is arguably the worst economy since the Great Depression. Maybe this is the right time. They say there is always opportunity in periods of distress and Microsoft has deeper pockets than most"

I'll put on a conspiracy theory hat ? this economic downturn has been engineered by the Republicans and their big corporate buddies to drive smaller companies out of business. It surely couldn't be that George Bush was stupid!

[Spartan_458]

Let me put on the more realistic conspiracy theory hat. Obama and his pals in the Senate have engineered this downturn to be able to pass these "stimulus" packages so that they can get more money for their little pet projects and also themselves. It surely couldn't be that politicians are greedy and untrustworthy!

[pentest]

Yeah, Obama got into a time machine and went back 12 months to destroy the economy.

[t8]

You asked a question Charles.
The answer is no. Microsoft cannot succeed.
You need to be cool to sell your stuff in this fashion.
Microsoft is not cool.
Their best strategy is forcing people to continue buying their stuff, without actually breaking the law.
That might not be possible these days, but Microsoft will probably try anyway.

[rapier1]

You don't need to be cool. Walmart is not cool and they're doing quite well. What you need to be able to do is provide the customers with a product they want at a price they can afford. I'm not saying MS can do this but to say they can't because they aren't 'cool' is just ridiculous.

[tm_anon]

The problem is that you're both right. Either you have to be cool or you have to provide the merchandise at a reasonable price.

Neither is the case for MS. Therefore, they will fail unless they change one of the two.

[Ian_Joyner]

Ballmer: "Who says we're not cool?" - just about everyone.

Microsoft has the same problem as Nissan - trying to be cool and stylish. Nissan just ends up designing the ugliest cars ever. Will Microsoft ever learn that the only way to be cool is to not try to be cool? No. In their case "cool" is just a marketing checkbox - and that will never be cool.

[t8]

Ha ha. So true.

[ibeetle]

So... wait... they are going to sell Microsoft products, hardware and software that is compatible with Microsoft products? They will not be competing with Apple stores they will be competing with
Target
Wal-mart
Best Buy
Borders
Barns & Noble
GameStop

Amazon
NewEgg

And every other retailer that sells Microsoft products.

The reason the Apple stores work is because there is little or no competition. Walk into 50 tech based retailers and you have your pick of the litter on Windows and Microsoft products, but only 49 (48 if there is a Best Buy in the mall) of them sell Apple products.

[CitizenX]

Don't forget the Byte Shop Nortwest, a very successful computer retailer in the early 80's. It can be done.

[myles taylor]

WHere are they now? Being successful is about longevity, not just brief success.

[CDubber]

Note to Microsoft: You're not Apple. GET OVER IT.

[john55440]

My Microsoft Store is Amazon.com.

One economic positive for Microsoft is that retail space is widely available and cheap.

Microsoft's retail concept is currently unknown, so it's too early to judge if it's a good/bad idea.

[tm_anon]

Judging from the video, the concept sucks. It's just a generic store with the MS brand-name stuck on the front.

[vamman]

Not a bad idea.

Perhaps we will see some cool video games, return of the side winder, new technology to shock a generation, really cool new toys. Not just a PC man, a hologram, a touch table for playing an RPG on, graphics tablets that are on sheets of paper.

I never thought the Apple store was cool. What do they sell? MP3 players? Give me a break. Apple is for everyone that wants to be different. Different is always a good thing either.

[Spartan_458]

If by "Apple is for everyone that wants to be different," you mean "Apple products are for sheep," then I'd agree with you.

How many people do you know with an iPod? How about another MP3 player?

[rnaoncfixd]

@ Spartan_458

So if everyone has an iPod that means they are sheep? Does everyone that has Vista or Windows 7 mean that they are sheep as well? A larger amount of the population has Windows or a PC. What does that mean?

[lkrupp]

It's looking more and more like Ballmer doesn't have a clue as to which direction the Microsoft ship is headed. He's throwing balls of crap against the wall and hoping something sticks. Shareholders need to be concerned.

[saffroncapital]

ha! This is hilarious - it seems that Microsoft's new corporate strategy is "BE LIKE APPLE" and it will succed.... what a bunch of idiots....

And the guy from Wal-mart - the kings of 'stack it high and sell it cheap'?? Oh right.. that will work....

[pentest]

Bad idea.

Unless MS is going into the OEM business like Apple and start putting hardware together, which would cheese off Dell, HP, Toshiba, etc, what is the point?

If they sell just software, it will be tough going. Most people are use to getting Windows for "free" when they buy a computer. There is little if any use to stick a big assed table in there or their laughable home server(times are tough and this server is lacking especially in a increasingly heterogeneous home network).

So what are they going to do? Stuff Vista and Office boxes alongside Zune and XBox? Well, trying to go head to head with BB or WalMart isn't much better then competing with OEM's.

[rollcage]

If MS can do it right, this might actually be a great opportunity for them. How many Best Buys or Walmarts have 360s set up that are hooked up to PCs as media center extenders, or have home servers set up? These stores might be able to show all the features of their products, and could drive up a little curiosity of some of the less popular ones (Zune).

[tm_anon]

Anyone who has a 360 has at least read about hooking it up as media center extenders. The Zune was hyped when it was released. It failed because of lock-in, not because people didn't know about them. These stores will be for Windows trolls only. MS has never been that good at making a die-hard fan. Instead, it's been great at creating the idea that you can't do your job without it.

More and more, this is being proven false. The store will fail unless MS can find ways to prove more inclusive for other systems.

[62Sparkplug]

Well at least the MS Stores will now provide a location where the 100 or so Zune users can get together and "squirt" each other.

[l.diazsantana]

What I found most interesting on the whole thing is the free amount of marketing they are doing for Apple's retail stores, and for Apple in general. All articles I've found in google news about this, have the same format as this one by Charles Cooper. The idea is tough, littered with failures from IBM to Gateway, and the only one who has succeeded has been apple. Then they talk about how, like with the iPod and iPhone, they were criticised because it was a new thing, out of their league, and the could not possibly succeed. Against all the odds, Apple has made a great profit in all cases. The last few paragraphs are used to stress how hard it will be for MS to achieve this, and then they give as an example the Zune's failure, and how MS is not good at starting in areas new to its core business (i.e. software).

While we wait to see if it succeeds or not, Apple is getting a good deal of good press at the expense of Ballmer's decisions for free. Who needs the I'm a PC, I'm a Mac, ads anymore?

[vmlenigma]

Question?
What are they going to sell at the stores? will the sales people have instant access to Tech support while they are trying to demonstrate a windows machine gone haywire? or another Zune freezing? or a bad bad virus infects the stores network? or an Xbox gets the ring of death while a gamer is playing? are they going to do demonstrations of Office (oh goody) I just hope that Steve Ballmer does not start wearing tight turtle necks (yuck) nothing worse than a fat dude trying to pack 20lbs of fat into a 2lb bag

[paulej]

Tech support.... oh, that's funny. Now that you say that, perhaps Microsoft's stores will see tons of traffic. There will be lines of people out the door to ask why their computer is not working and demanding that somebody fix it.

Microsoft seems to be setting themselves up for failure, but then so did Apple. I guess it remains to be seen.
An interesting thing that I don't think has been touched on here is the devaluation of the Apple brand stores by Microsoft opening a "me-too" store. I know it sounds weird, but if enough people open "we're cool tech stores" it dilutes the value of each of them. It could be argued that it "strengthens" Apple's brand because they have the strongest presentation, but I personally don't think that's the consumer's reaction to more choices.
It will be interesting to see what exactly Microsoft sees as the true value of their stores.