Is Microsoft a Sore Loser?

I'd be pretty sore, too, if I stacked the deck in my favor and still got drawn out on.

Microsoft (Nasdaq: MSFT  ) has been turning up its Windows Phone marketing in an aggressive attempt to bolster its underwhelming market share. It's been hosting a "Smoked by Windows Phone" challenge at its retail stores not unlike PepsiCo's Pepsi Challenge from decades ago.

Don't splash the pot
The company started the promotion as a $100 offer at the Consumer Electronics Show in Las Vegas a few months back. The challenge required contestants to beat a Windows Phone in various speed tests that Microsoft outlined, such as posting pictures on Facebook or status updates, among other things.

Source: WP7connnect.com.

The software giant subsequently expanded the challenge to its growing network of retail stores in conjunction with an opening weekend promotion for Lions Gate's Hunger Games. Mr. Softy raised the stakes by offering winners a Hunger Games Special Edition PC valued at "over $1,000."

A consolation prize for unsuccessful contenders was that Microsoft would still gladly swap out any devices that fell to the raw power of Windows Phone, naturally including Apple (Nasdaq: AAPL  ) iPhones, Google (Nasdaq: GOOG  ) Android devices, or Research In Motion (Nasdaq: RIMM  ) BlackBerrys.

All contestants can walk away with a shiny new Windows Phone (contract-free) instead, which is an unsubtle way to directly convert users from Apple, Google, and RIM, collectively, and grow its installed base.

Bottom-dealing
The specific tasks included in the challenges are stacked in Microsoft's favor. The Verge even exclusively reported how Microsoft employees are instructed to "select a challenge appropriate to your customer," with some clues as to which events to pit specific devices against for the best advantage. With $1,000 on the line, Microsoft knows there are risks that certain devices will win out and advised employees to steer clear.

For example, the iPhone 4S has "a very fast camera, so it is a serious contender" in a challenge where you snap a photo and post it to Facebook. Android has weather widgets, which give it an advantage in a challenge to pull up the weather in two cities. Employees are cautioned to keep an eye out for the dreaded "power user scenario."

So Microsoft knows where it has advantages, and employees have the upper hand since they pick the specific challenges that are geared toward functions directly integrated into the Windows Phone OS.

Check raise
Enter Sahas Katta, the owner of a Galaxy Nexus who took the challenge. He stopped by his local Microsoft Store to compete and proceeded to beat a Windows Phone device by using a few shortcuts (which weren't prohibited in the official rules), including the weather widget trick that Microsoft was aware of.

Unfortunately, the store employees didn't pay up, instead offering vague excuses about why he was disqualified. Katta took his tale to the World Wide Web, which went somewhat viral and a controversy ensued. In light of the attention, Microsoft has now extended a formal apology and given Katta the PC in addition to a new Windows Phone (for a combined value of almost $2,000), which Katta is subsequently auctioning for charity.

Winner, winner, chicken dinner
Controversy aside, this is actually a pretty clever promotion. Contestants agree to let Microsoft use their story in an advertising campaign, so you can expect some TV commercials within a few months based on these challenges.

One reporter aptly noted: "In some ways, Microsoft's challenge is like a carnival attraction, complete with an outlandish prize, a smooth operator, and a game that (only in hindsight) is deviously unfair. Watching [the employee's] hands move, like any good carny, I couldn't help but grin at the speed with which he handled these tasks."

In fact, many of the people waiting in line that day already knew their clunky older Androids, iPhones, and BlackBerrys couldn't stack up -- they just wanted a free new phone. All they had to do was sign some forms and play the game, and they walked away with a new smartphone, while Microsoft gets to write off its loss on the trade as a marketing expense while distributing devices.

Too bad market share is typically measured in revenue on new sales, so these gimmicks won't help Mr. Softy's 1.9% worldwide chunk any time soon. If it can convert enough users who eventually upgrade, this might pay off down the road.

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Fool contributor Evan Niu used to gamble way too much. He owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Microsoft, PepsiCo, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, PepsiCo, and Google, creating a diagonal call position in PepsiCo, and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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