Sunday, February 15, 2009

Microsoft, With Retail Push, Emulates Rival Apple

Microsoft's decision to launch a retail push for the first time suggests the company is hoping the success of smaller rival, Apple, in reaching consumers, may rub off on the larger company.

On Thursday, Microsoft confirmed long-rumored plans to launch retail stores, a move underscoring the challenges the Redmond, Wash.-based software giant faces in the way it reaches consumers.

While Microsoft owns the world's largest and most profitable software franchises in Windows and Office and has a successful consumer electronics product in the Xbox console, it has stumbled in recent years with consumer-facing products like the Zune music player, which have failed to make significant traction against Apple's iPod.

Meanwhile Apple's operating system has recently made gains in the core desktop computer market, which Microsoft, through its Windows operating system, dominates. In 2008, Apple's share of the U.S. personal computer market rose to 7.7%, according to IDC, from 6.4% in 2007.

Microsoft said it had hired David Porter, most recently head of worldwide product distribution at DreamWorks Animation since 2007 and a 25-year veteran of Wal-Mart Stores, the world's largest retailer.

"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," Microsoft Chief Operating Officer Kevin Turner said in a press statement.

There are multiple reasons Microsoft wants to improve its relationship with consumers. It is gearing up to launch the next version of its flagship operating system, Windows 7, at some point in the next year. The company hasn't confirmed the exact launch date, but it is expected to be late 2009 or early 2010. The current version of the operating system, Windows Vista, hasn't been considered an overall critical success, and many corporate customers have held back from deploying it. Driving consumer adoption will help Microsoft persuade all-important corporate buyers to deploy the operating system.

Microsoft is also increasingly seeking to persuade customers of the interconnectedness of its consumer products which span home PC software, Internet search tools and online portals and mobile phone operating system software, as well as the core desktop Windows and Office tools.

Jefferies' Egbert noted that Apple's very successful turnaround of its own business, spearheaded when Chief Executive Steve Jobs returned for a second tenure at the helm of the company, roughly coincided with its decision to open its own chain of retail stores, in the late 1990s. More than one-fifth of Apple's fourth quarter 2008 revenue came from its retail stores.

Microsoft didn't immediately disclose the value of the investment it was making in the stores, the number of stores it would open or the store rollout.

"Retail will help Microsoft in telling a broader story it wants to get across about products from Windows Live to Windows Mobile," Matt Rosoff, an analyst with Directions on Microsoft, said.

But some reactions on technology blogs were less complimentary.

"What will they sell?" Sam Diaz, at, wrote in an online commentary. "Boxed software? Xbox? Zune? The stuff that Microsoft wants you to know more about - Windows 7, Windows Mobile and Windows Live - aren't products that you would buy at a Microsoft store."

Microsoft has recently been trying to reach out more directly to consumers through advertising. In 2008 it launched a marketing campaign at a reported cost of $300 million, kicked off by a whimsical TV spot featuring its founder, Bill Gates, and the comedian Jerry Seinfeld. The spot, which showed the two men talking about buying shoes, tried to stress Microsoft's relevance in a world where traditional computer operating systems were becoming outdated. It was also seen as a riposte to Apple's long-running campaign which pitches its own computers as simpler and more consumer friendly to Microsoft's Windows.

As part of this, Microsoft initially flagged a retail push involving chains, which was scheduled to involve Best Buy and Circuit City Stores. Circuit City in January said it would go into liquidation after failing to reach an agreement with creditors or find a buyer.

Rosoff said the beleaguered current state of the electronics retailing industry likely prompted Microsoft into the decision to launch its own chain.

Sources: Dow Jones Newswires, The Wall Street Journal

No comments: