Three Reasons Microsoft Will Fail with Retail

One of the biggest questions about the recently proposed Microsoft retail stores is what they will look like and what they will sell. The challenge for the software giant is how to sell its most popular product, the Windows operating system, to consumers when Windows has always been sold indirectly through OEMs.

Microsoft could, like Best Buy, display in their stores all the computer manufacturers that run Windows. It could, of course, sell its own hardware offerings such as the Xbox 360 and the Zune MP3 player. It could also have in-store displays showing how Microsoft can make all the digital content in your home connected and interoperable, and then sell those products and services.

It could do all of the above. But as of yet, Microsoft has not provided details about its retail store strategy. Still, some retail vets are already skeptical.

One consultant with 20 years of experience advising senior managers in retail, Peter Skarzynski, CEO and founding director of Chicago-based consulting firm Strategos, says he does not have high hopes for Microsoft as a retailer.

“Apple and Best Buy, in different ways, own the consumer electronics retail experience right now, and Microsoft would have to be better than them, even though it has no competence in retail,” says Skarzynski.

In an interview, Skarzynski highlighted three big problems for Microsoft as it dives into the retail waters

1. Retail Does Not Complement Microsoft’s Business Model

Unlike Apple, Microsoft relies on partners to sell its products, which could complicate a retail strategy.

“I think Microsoft retail stores will struggle because they do not relate to Microsoft’s business model,” says Skarzynski.

Skarzynski points out that there are examples of non-retailers taking matters into their hands and succeeding—Apple being the shiniest example. “Apple’s strategy made sense because the stores were necessary for its business model,” he says. “Consumers wanted to go there and see and touch and feel Apple products. Apple offered an experience that traditional retailers could not provide, and still cannot.”

And because Microsoft has no capabilities in retail, it needs to do more than hire a talented executive from Wal-mart, Skarzynski adds

The key question for Skarzynski: What could a Microsoft store bring to a consumer that they couldn’t experience at a Best Buy store?

In one possible answer to that question, Microsoft could use the stores to help people with the interoperability of all the digital content in their home, he says.

“But that’s an awfully expensive marketing push to be able to do that,” Skarzynski says.

2. A Retail Store Could Create Conflicts with PC Makers

It’s unclear whether or how Microsoft will manage and display offerings from various Windows PC makers in its retail stores. But it’s a situation that could open up a can of worms, says Skarzynski.

Manufacturers blocked from being displayed in a Microsoft store could partner more closely with retail competitors, who could then capitalize on an OEM war by driving down prices, he speculates.

“Hypothetically speaking, if I were a Microsoft OEM and was blocked access to a Microsoft store, I would have great incentive to work more closely with Best Buy, who is much better than Microsoft at selling computers anyway,” says Skarzynski.

“Best Buy then would have great skill at playing this to its advantage. The consumer wins by getting a better price on a laptop, and Best Buy wins because it will have manufacturers wanting to work with them more closely.”

3. Microsoft Does Not Provide an ‘Experience’ for Customers

Microsoft’s products are not about an “experience;” they are about interoperability, says Skarzynski. Most customers’ frustrations about Microsoft software are with the interoperability of Windows and Office with accessory products and software from other suppliers.

“I don’t think the retail outlet fixes that,” he says.

Again, Skarzynski says the only way Microsoft can set itself apart and generate the kind of “experience” of an Apple store is by creating a showcase for the digital hub in the home.

“They could be demo stores where you can buy products, but the real value for customers is showing how they can take their digital content such as family photos, downloaded music and movies, and business and personal data and make it highly interoperable,” he says.

If Microsoft does not create an experience, says Skarzynski, it will likely go the way of other manufacturers that have seen stores close.

“Other really good hardware manufacturers such as Gateway, Sony and especially Nokia, which connects with consumers in a deep way, have failed at retail. Why is Microsoft going to be different?,” he says.