Daniel Eran Dilger in San Francisco
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Microsoft to open new retail stores like Apple

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Prince McLean, AppleInsider

Microsoft has announced plans to dive into the challenging retail business with its own corporate-branded outlets to take on Apple’s growing visibility among consumers.
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A report filed by Reuters said the company had no information on what products the stores would sell, how many it planned to open, or when and where those stores might open.

Those details would be determined by David Porter, a former DreamWorks Animation executive heading up worldwide product distribution who earlier acted as a manager at Wal-Mart. Opening a new chain of stores would be a monumental task, particularly during a global recession that is literally killing retailers of all kinds.

In a press statement, Microsoft COO Kevin Turner said, “We’re working hard to transform the PC and Microsoft buying experience at retail by improving the articulation and demonstration of the Microsoft innovation and value proposition so that it’s clear, simple and straightforward for consumers everywhere.”

Tech retail stores have a particularly poor track record, with Gateway and Palm failing in their efforts to sell their own hardware in boutique stores, and the high profile failures of CompUSA and Circuit City to operate larger stores with wider PC-related product selections.

Apple’s adventures in retail

Analysts expected Apple to fail when it announced plans to begin opening stores back in 2001. Consultant David Goldstein of Channel Marketing Corp said at the time, “It makes absolutely no sense whatsoever for them to open retail stores.”

Goldstein claimed Apple’s retail strategy wasn’t going to work because consumers “haven’t indicated that they’re having trouble finding outlets that sell Macs,” adding, “It’s another case of Apple being Jobs driven and not consumer driven.”

Apple had earlier floated conceptual plans with Landmark Entertainment to open a series of posh cybercafes back in 1997, an idea which went nowhere. But in 1999, realizing Apple needed outside expertise to enter the retailing business, Steve Jobs recruited Millard ‘Mickey’ Drexler (who had served as CEO for the Gap and later J. Crew) to assemble a retail team.

Apple then hired Ron Johnson, a vice president of merchandising at Target, as its senior vice president of retail operations; George Blankenship from the Gap as its vice president of real estate; Kathie Calcidise as its vice president of retail operations; and Sony’s Allen Moyer as its vice president of development.

Ten years later, Apple’s 251 retail stores, 41 of which are outside the US, employ nearly 16,000 employees and contribute more than a quarter of the company’s profits. The iconic stores give Apple a public face and serve as training centers as well as sales outlets. At the release of the iPhone, Apple’s retail store locations helped to whip up a media frenzy with enthusiastic buyers camping out in long lines.

Microsoft’s desire for retail stores

In contrast, Microsoft was at the mercy of independent retailers when it tried to release the Zune in competition with the iPod. It ended up embarrassed when retailers failed to promote it over the faster selling iPod, in some cases selling the iPod on top of unsold boxes of Zunes. Microsoft similarly spent millions to get retailers to promote Windows Vista, without much success.

With its own stores like Apple’s, Microsoft would have greater ability to push its products exclusively, rather than seeing its Xbox 360 sit next to the newer Sony PlayStation 3 or the cheaper Nintendo Wii, for example. At the same time, if Microsoft plans to sell Windows PCs or Windows Mobile Phones, it might run into problems balancing the attentions of its hardware partners.

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Dell has attempted to open its own retail stores selling Windows PCs, and along with other PC retailers, might take offense at Microsoft muscling into its turf, just as Apple’s retail partners initially expressed concern when the Mac maker first announced plans to sell its own hardware itself.

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Microsoft’s Metreon retail experiment

Microsoft has operated at least one retail store in the past, an 8,500 square foot development at the Metreon in San Francisco called “microsoftSF,” launched during the dot com boom in 1999. In addition to rows of software boxes and demonstrations of Microsoft’s ill fated WebTV Network, the store also displayed art installations, such as one involving Microsoft Mice decorated by various people, and sold microsoftSF merchandise.

In a press release introducing the store, CEO Steve Baller said, “San Francisco and the Silicon Valley are home to the world’s largest and one of the most sophisticated high-tech audiences, so this was the natural place to create this site – dedicated to showing, in an interactive environment, the way technology can enhance our working, learning, living and playing.” The location closed two and half years later and is now a Sony Playstation store.

After watching Apple succeed in retail and the company’s profile in general rise in the consumer electronics market, Microsoft has kept a close eye on Apple’s other operations as well. The company has recently revealed plans to open an online mobile marketplace patterned after the iPhone App Store called SkyMarket, and to operate a cloud syncing service similar to the iPhone’s MobileMe called My Phone. It has also replicated components of Apple’s iLife apps, attempted to clone Apple’s integrated iPod with the Zune, announced plans to add iPhone-like touch features to Windows Mobile, and has closely monitored the development of Mac OS X, modifying its plans for Vista and Windows 7 to make them more competitive with Apple’s offerings.

18 comments

1 Cataclysm { 02.13.09 at 5:49 am }

Daniel,

The Xbox 360 is currently cheaper than the Wii. But that doesn’t even matter since Wii systems are constantly sold out.

2 Jon T { 02.13.09 at 6:17 am }

Air filtering masks will be essential needless to say!

MS has to be the laziest corporation that ever existed.

3 luisd { 02.13.09 at 7:29 am }

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 ir RDM: The idea is tough, littered with failures from IBM to Gateway and Palm, 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?

4 vokuhila { 02.13.09 at 7:49 am }

“We’re working hard to transform the PC and Microsoft buying experience at retail by improving the articulation and demonstration of the Microsoft innovation and value proposition so that it’s clear, simple and straightforward for consumers everywhere.”

Wow, Microsoft has a articulated demonstrable innovation and value proposition!

5 Tardis { 02.13.09 at 11:35 am }

Apple started with an online store, and Microsoft already has its own. You can buy various versions of Windows, Office, X-boxes, mice and keyboards and other software such as “Visual SourceSafe 2005 Full
Developer tool”.

All very exciting, but of course none of this works together without some other maker’s products. Unless Microsoft is going to assemble its own Beige Boxes, they cannot display their own products unless they also showcase some other maker’s hardware.

6 daGUY { 02.13.09 at 11:42 am }

Hmm…I think a Microsoft store COULD have potential if they focus it mainly on the Xbox – set up a cool, lounge-type atmosphere and let people come in and play some videogames for free. But if it’s mainly like, Vista PCs and boxed copies of Windows, I don’t see that being too enticing…haha.

Then again, as Dan points out, “the company had no information on what products the stores would sell, how many it planned to open, or when and where those stores might open.” Sounds like this could just be a typical MS pre-announcement designed to make it sound like they’re “catching up” to Apple or whatever. I wouldn’t be surprised if the stores never opened and the whole idea just disappeared without another mention.

7 luisd { 02.13.09 at 11:45 am }

@daGuy, wot? What kind of company designs its announcements to make it sound as if they are “catching up”?

8 Jesse { 02.13.09 at 12:29 pm }

@luisd:

Do you read this site much? Many of the articles detail how MS announced upcoming products to seem competitive with a product already on the market, then never came out with it.

9 luisd { 02.13.09 at 12:50 pm }

Yes, I read it (it’s almost addictive). But, still competitive, is not the same as catching up. Look at the Palm Pre marketing so far. Their rhetoric is not about catching up with the iPhone, it is about “we are going to provide features that the iPhone can’t do”. The costumer needs to believe they are getting more or different than the competition. Catching up is all about getting there but not quite.

What I meant was that if MS is really aiming at being seen as “catching up” the company must be in worse state that it seems…. and that is saying a lot!

10 lyndell { 02.13.09 at 1:11 pm }

How could you do that to a picture of a Walmart store?! …and not even skew the text to fit the perspective? It does seem appropriate for Microsoft though, except they’d have more gloss, sugar coating and a prettier sky.

11 Brau { 02.13.09 at 3:43 pm }

How Microsoft’s retail stores will differ from Apple’s:

1. They’ll have so many unofficial “entrances” (otherwise known as Windows? ), that people will be able to steal easily, but won’t for lack of desire.

2. Each customer will be scrutinized by at least three security vendors and require *authorization* before they are allowed to view anything.

3. BSOD now means Buy Stuff Or Die.

4. Their *registry* ain’t no gift list!

5. DLL is an acronym for DULL.

12 august { 02.13.09 at 5:34 pm }

I like how you left out that the Metreon started out as a Sony venture. MS store in a Sony building.

13 nat { 02.13.09 at 5:38 pm }

The Xbox 360 is currently cheaper than the Wii. But that doesn’t even matter since Wii systems are constantly sold out.

Well, when you spec them out the same, the Wii is cheaper. The lowest priced 360 SKU, the Arcade model for $199, comes with a pathetic 256MB proprietary memory card, whereas the Wii ships with 512MB internal flash storage and uses standard SD flash cards. A 512MB Xbox 360 memory card will run you $50, bringing the price up to the Wii’s $250. The Wii also comes with built-in WiFi and Bluetooth. While no amount of money will get you BT on the 360, you’ll pay $100 for the 360 WiFi adapter. Now we’re up to $350. Finally, the Wii has free online play in contrast to the $50/year Xbox Live Tax (though the Wii’s online system is admittedly pretty poor and unified).

14 gus2000 { 02.13.09 at 5:48 pm }

I had the dubious pleasure of visiting the Metreon Microsoft store once, and it was a depressing epitomization of retail “fail”. Row after row of Windows and Office. And mice. Really? Mice? I think FotoMat had a better business model.

Funny how most of Microsoft’s “innovation” mirrors what Apple does, and bears very little resemblance to the predictions of the future that they laid out years past. Weren’t we all supposed to be using pen-based tablet PCs by now?

Here’s my prediction for the future: MS stores will lose money faster than the XBox, but pundits will suggest that MS will “make it up in volume”. Years of losses will be deemed “investment”. And when the eventual closing of an underperforming Apple store comes to pass, the punditry will cry “oh noes, sell ur stockz, Apple is doomed, DOOMED”.

15 Microsoft Retail Stores - Mac-Forums.com { 02.14.09 at 2:23 pm }

[...] stores, but manage to get the mix wrong and manage to create another consumer turkey like the zune Microsoft to open new retail stores like Apple — RoughlyDrafted Magazine __________________ New here? Make sure you read the forum rules | Use the Rep system Member [...]

16 daGUY { 02.14.09 at 10:25 pm }

@gus2000: You’re totally right. Microsoft dumps tons of money into profitless projects and pundits talk about how their solution will “take over the market” by X date, yet if Apple doesn’t post stellar results for every product 100% of the time, Rob Enderle is out in full force predicting Apple is doomed…again.

It’s sad how we already know how the whole thing’s going to play out.

17 CCS { 02.17.09 at 11:22 pm }

Microsoft should definitely display their software using Macs. It’s more abstract and artsy that way, don’t you think?

18 Why Microsoft Will Slaughter Its Windows Mobile, PC Partners, and What it Means for Apple and Google — RoughlyDrafted Magazine { 08.20.09 at 12:27 am }

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