Should Microsoft Stores Worry Apple?

On Monday, David Porter starts at Microsoft as corporate vice president of retail. He comes to Microsoft following a two-year stint with DreamWorks Animation and a quarter-century at Wal-Mart. His first responsibility: Planning Microsoft stores.

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I've long advocated that Microsoft should open retail stores. Apple's success isn't the reason. Microsoft has serious marketing problems that Apple is just now starting to encounter: Product complexity that complicates marketing. Succinctly, Microsoft problems are:

• Product benefits tend to multiply, which makes the selling harder. Microsoft widget A is pretty good but better with widget B and also C. Microsoft calls this concept "better together," but it's worse from a marketing perspective. Apple's hardship is less, because popular products such as iPod and iTunes started out doing one thing well and expanded features over time; customers are familiar with the basics. New capabilities tend to be related and consolidated.
• Retailers could better promote Microsoft product benefits, but often don't. They typically still push hardware and software specs and features over benefits. Apple has similar problems outside its own stores.
• No one sells a Microsoft lifestyle. Most successful brands promote a lifestyle related to their products. Apple, Harley-Davidson, Nokia and Pepsi are all lifestyle brands. Among Pepsi products, Mountain Dew is perhaps best example of lifestyle marketing. The official Web site, with the now shortened Mtn Dew, shows the lifestyle approach. Apple Stores promote a Mac lifestyle. Microsoft has got none.

These are the reasons Microsoft should open retail stores, but company executives might have other ones. If the primary one is Apple, I predict the stores are doomed before they open. Chasing Apple is the wrong reason to go into retail.

Budget? Hip? Practical?
There are tweets aplenty about Microsoft's retail plans, today. Jim Hong appropriately questioned: "What kind of brand image are they going for? Boutique or Budget? Hip or Practical?"

Microsoft could go a number of different ways with the stores:

• The Wal-Mart approach would emphasize value: Microsoft software and OEM partner hardware pack in lots of features for low cost. Value marketing would emphasize the so-called "Apple Tax"—the price premium Microsoft claims people pay for Macs over PCs. Apple wouldn't want these kinds of retail shops in the same malls as its stores.
• Hip would emphasize gaming and entertainment. That means Xbox 360 and all the cool ways to customize the game consoles with third-party gears. Yes, Zune would have its place in the stores and Windows Mobile phones, too. Two themes would emerge: Having fun and being social using Microsoft software and services or supporting third-party products.
• The practical approach would cater to small businesses—how they can get more done for less by going Microsoft. But there would be a practical aspect relating to lifestyle, too. Increasingly there are simultaneously convergent and divergent personal and professional lifestyles. The same products are often used at work or school and home.

Jim's questions are appropriate, because the answers should be "yes" to them all. Microsoft should open one kind of store that is budget-oriented, hip and practical. Microsoft would be smart to quadrant the stores, but not the same as Apple does. Apple stores used to be sectioned by lifestyle function, such as photos and video. Today, the stores are more-often divided up around products. Microsoft should be bolder, with quadrants embracing different digital lifestyles.

Build the Right Store
I would design a Microsoft store around a central hub that is brimming with motion and excitement. Flashing screens would show different hip aspects of the Microsoft lifestyle and how different products can work well together. Along the periphery would be lifestyle quadrants. Some suggestions: Business, gaming, mobile, music, school and teens.

Teens should be a top marketing priority for Microsoft because:

• Apple and Google are doing well courting the teen segment to their products.
• Analysts say that today's teens don't have brand allegiance, which is wrong. There's a pack mentality; teen allegiance follows brands used by friends. If they all buy Microsoft, they all buy Microsoft. Or Apple.
• Even in a weak economy, teens will have lots of disposable income to spend.

Where Microsoft should imitate Apple: Sideline or even ditch altogether the cashier section. Apple's handheld point-of-sale device approach is simply brilliant. Microsoft should do the same. After all, those handhelds used in Apple Stores run Windows Mobile/CE.

The Nokia-Sony Hybrid
The best model for a Microsoft store isn't Apple, but a Nokia-Sony hybrid. Nokia and Sony share similar marketing and channel problems with Microsoft:

• They offer a wide variety of products.
• Their products are sold through many other retailers (e.g., channel conflict).
• The stores sell different digital lifestyles.

Sony says it all with the name: SonyStyle Store. Lifestyle is the point, and like Microsoft Sony sells many products that presumably get better when used together. Sony recently started putting BackStage booths in the stores. Like Apple's Genius Bar they provide technical assistance. Sony also promotes BackStage from the SonyStyle Web site. Microsoft stores should offer similar support and training services as Apple and Sony, with emphasis on promoting the Microsoft lifestyle.

Nokia operates two flagship stores in the United States compared to about 60 Sony locations (including outlets). Americans are deprived of Nokia marketing, since the cell phones sell more in Asia, Africa and Europe than here. Among technology companies, Nokia is the gold standard for lifestyle marketing, much better than even Apple.

My suggested Microsoft store design is for the purpose of emphasizing lifestyle. Microsoft may want something more concrete for people to identify with, which could even be "I'm a PC."

Microsoft should not just sell its technologies but use them in a hip, lifestyle-marketing way. There should be Surface tables, Touch Wall, Windows 7 multitouch screens, digicam demonstrations using Photsynth and learning area with WorldWide Telescope. Why not some Songsmith Karaoke?

Timing Is Perfect
I've read some commentary over the last 24 hours suggesting that Microsoft has got lousy timing. They contend that it's lunacy to be launching new retail stores when so many retailers are going bankrupt. That's butt thinking. Stop sitting on your brain! The recession makes 2009 a very good year to launch a new retail chain. Some reasons:

• Microsoft's retail channel is shrinking. Circuit City won't be the last electronics dealer to go belly up this year, or next.
• Retail real estate is going to be cheap. Mall managers are freaking out about all these stores closing. Microsoft would be a great multiyear tenant. Malls will get commitment, but perhaps not price. They're hurting for stores, and Microsoft will know it. No company negotiates good deals like Microsoft. Terms will favor Microsoft.
• Microsoft has the cash to invest in retail. If the stores are done well and located in high-trafficked malls, they'll pay for themselves in marketing.

Microsoft will succeed or fail based on vision. If the model is Wal-Mart, which is David's retail background, Microsoft shouldn't bother. If the vision is Microsoft's fake store, showcased in early January, again, there's no reason to bother. Staid Microsoft must be bold and do for retail what Apple did: Make competitors look oh-so last century. If not, Apple shouldn't worry much about Microsoft stores.

[Please send your tips or rumors to watchtips at live.com].

Posted by Joe Wilcox on February 13, 2009 4:06 PM