This Is How Microsoft Beats Apple

As an investor, I hate consensus, so it makes me nervous that so few of you think that Microsoft's (Nasdaq: MSFT  ) plan to open retail stores is a good idea.

"Rarely have we seen a concept so universally derided as Microsoft retail stores," wrote the editors of blog MacDailyNews in response to my article las week. "Even Vista and Zune were better received. The fact that Microsoft is seriously considering retail stores is proof positive that the company's 'management' has an unmeasurably over-inflated opinion of the company." 

Foolish colleague Anders Bylund is the lone dissenter, it seems. "Had these stores been running a couple of years ago, Windows Vista might presumably have been sent back to the lab again for a few more rounds of bug-fixing and refinement," he wrote.

Mind the gap, Mr. Softy
I'm not buying it, nor are many of my fellow Fools. "Apple (Nasdaq: AAPL  ) is definitely a consumer electronics product, Microsoft is not. It is a means to an end, not a sensory experience," wrote reader Timberly Marek.

Agreed. Vista's perception problems persisted among corporate IT managers who lobbied for continued support of Windows XP. Some consumers weren't thrilled with the OS, either, but their outcry wasn't nearly as audible.

Still, others really like it. (Gasp!) "Vista is not being embraced as an upgrade for individuals and companies because of the expense factor. Too bad, because Vista offers a great computing experience," wrote commenter prose976 in response to news that Intel (Nasdaq: INTC  ) had declined to upgrade its XP machines to Vista. Would retail stores have changed its mind? I doubt it.

That said, there is a retail gap for Mr. Softy to fill. Tech-savvy consumers who want an integrated entertainment experience -- like an iTV capable of playing Web, TV, or video game programming on demand -- don't have a home at the mall. Microsoft can change that.

A better media center
Skeptics will argue that Microsoft has already tried and failed to bridge the gap between the PC and the TV with its Media Center PCs. True. A retail presence probably wouldn't have changed that, either. Why would a similar effort work now?

Competition is more hesitant today, and its technology more capable. Take Apple. Last month, Chief Operating Officer Tim Cook told investors that the iEmpire still considers its Apple TV player "a hobby." Best Buy (NYSE: BBY  ) , meanwhile, is fundamentally a big box retailer. GameStop (NYSE: GME  ) still offers plenty for gamers, but its business is under assault from e-tailers. In short: None of these retailers are outfitted for Web-centric entertainment.

Now imagine a Microsoft store that features:

  • Hands-on displays of the Xbox, networked for multiplayer action.
  • Wi-Fi-ready Zunes tricked out with related audio gear.
  • And best of all: Big-screen, high-definition TVs showing all sorts of Web content: streamed movies, a live World of Warcraft adventure, YouTube videos.

There'd be room for Windows PCs, too, but only the really advanced stuff -- the stuff that makes your entertainment experience even more entertaining. Let Dell (Nasdaq: DELL  ) and Hewlett-Packard (NYSE: HPQ  ) sell everything else.

Microsoft could also have experts a la Geek Squad and Apple's so-called Geniuses, but they'd be trained for the bridging problem -- installing and servicing home theater systems built around the Xbox or enhanced via the Zune or Windows Mobile smartphones.

Let someone else polish Windows ...
Consumers have more access to digital infrastructure than ever before. And that's only going to get better with an Obama administration that has promised national access to broadband Internet. Someone will profit from that by bringing more of the Web into our living rooms.

So far, Apple isn't trying. Microsoft can with the right retail strategy, one that thinks bigger than Windows. What do you say, Mr. Softy? Will you mind the gap?

Apple, Best Buy, and GameStop are Stock Advisor selections. Dell, Intel, and Microsoft are Inside Value picks. The Fool owns shares of Best Buy and Intel. It also owns covered calls of Intel. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Tim had stock and options position in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Best Buy and is also on Twitter as @TheMotleyFool. Its disclosure policy wants its iTV.


Read/Post Comments (15) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2009, at 1:06 PM, esxokm wrote:

    Tim,

    I must respectfully disagree. Opening stores is not something Microsoft should do. There's no way to get a handle on what kind of return on investment the company would achieve. And the margins would not be attractive compared to the other businesses.

    While, granted, now would be the time to invest in retail locations since the real estate market is down, one could make an argument that now is a very risky time to invest, considering the Great Recession.

    Microsoft should simply concentrate on cash flows, dividends, and cutting costs in its Xbox unit.

  • Report this Comment On February 17, 2009, at 1:13 PM, ViewRoyal wrote:

    Amongst the many reasons why Microsoft Stores would be a supremely bad idea:

    - Microsoft doesn't make PCs, so which company's computer products will be & won't be on display to demo MS software (will there be payola involved?) to take up display space and distract customers.

    - There will need to be a Microsoft "Genius" in the stores. They will be inundated with people bringing their computers in to fix virus and spyware infections.

    - Spending this much (possibly billions of dollars) to set up a world-wide chain of stores, during a recession when Microsoft is downsizing it's technical staff, is diverting money that should instead be spent on creating more reliable and secure software products.

    - Microsoft does not have consumer cred or a coolness factor, like Apple does. They are putting the cart before the horse by opening consumer stores in hopes that this will acquire those qualities for them.

    - Microsoft is working against themselves in their goal of wanting to be seen as innovative, when they just copy Apple (again) instead of actually innovating.

  • Report this Comment On February 17, 2009, at 1:26 PM, TMFMileHigh wrote:

    Hi ViewRoyal,

    You'll see that I agree that *Windows* stores are a supremely bad idea:

    http://www.fool.com/investing/value/2009/02/13/microsoft-now...

    A Microsoft entertainment center is an entirely different idea and one that I believe has merit.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 17, 2009, at 3:36 PM, GregBachand wrote:

    Talk about irony. For years Wintel folks claimed Mac was just a toy, for kids etc. Now you are suggesting that Microsoft open a toy/entertainment store, and leave the serious stuff to Apple. I love it.

  • Report this Comment On February 17, 2009, at 10:14 PM, fivej1 wrote:

    Tim,

    Mr Softie has proven himself tone deaf over and over again, think the Vista debacle. Apple is elegant and Mr. Softie is inelegant and needs to recognize that. Instead he should concentrate on fixing his software, his memory hogging, buggy and insecure software. Apple has the hardware/software package thing down pat and Mr Softie doesn't and Zune proves it. Don't waste resources when you will be lucky to be anything other then a distant second. Mr. Softie should concentrate on being the best, not just the dominant software maker.

  • Report this Comment On February 18, 2009, at 12:34 AM, JavaChipFool wrote:

    I think the store would be GREAT!!!

    The payback of thousands of Softy employees struggling with compatibility issues trying to network all those gadgets to show consumers how they work together(They are SUPPOSED to work together, aren't they?) and the suffeing they will endure...Ohhh, the sufffffering!!! WOO HOOO.

    Go for it microsoft. I am behind you 100% You deserve exactly what you'll get for this one!!

    Dave

  • Report this Comment On February 18, 2009, at 9:03 AM, geraldz wrote:

    Apple TV is a hobby because Apple knows that there really is no need for an expensive box. You already have one - you PC. Just connect it to your TV with an inexpensive cable, and voila, the Internet is on your TV. Then you can shop around for movies (and lots of other content) and not be held hostage to the iTunes monopoly. http://PCTVCables.com

  • Report this Comment On February 18, 2009, at 11:11 AM, MotleyBigDaddy44 wrote:

    OK... with stores like Circuit City going Bankrupt and others possibly right behind them it makes me wonder what Mr. Beyers must be thinking to even suggest a MicroSoft Store to be a good idea. The Mac Stores are only in the most upscale...malls and have enough Macheads in their zipcode to support a store... but the reality is people go to the Macstore to check out whats new and cool... get some hands on and then go to a discount store or to the internet to make the actual purchase... so I'd have to guess that these stores are loss leaders at best.. The Mac has always been the first choice of Musicians and Graphic artists and those on the leading edge of multi-media. Even Windows came after the Mac showed the way.. It will probably always be the company of Pioneers and MS will copy and try to follow. Stores such as Frys give the computer world a showcase and they are aggresive enough in pricing to get off the shelf sales as well... a MS Store would be like getting stuck in an elevator with a life insurance salesman... (thanks Woody).

  • Report this Comment On February 18, 2009, at 12:44 PM, TMFMileHigh wrote:

    Hello MotleyBigDaddy44,

    >>the reality is people go to the Macstore to check out whats new and cool... get some hands on and then go to a discount store or to the internet to make the actual purchase... so I'd have to guess that these stores are loss leaders at best..

    Thanks for commenting but the numbers don't support your thesis. In sales-per-square-foot, the Apple Store is one of the most successful retail ideas ever. More:

    http://www.fool.com/investing/general/2009/01/05/where-apple...

    Thanks again and Foolish best,

    Tim (TMFMileHigh and @milehighfool)

  • Report this Comment On February 18, 2009, at 1:01 PM, desdecardo wrote:

    I'm with JavaChip; The frustration factor alone would be worth the price of an MS store.

    OK; There's a fundamental flaw in opening a Microsoft store as opposed to an Apple store. Apple is an OS *AND* a platform! The competitive advantage here is that the "Geniuses" could (and do!) fix the problem with your PC and then offer to sell you a Mac as a replacement. What would a Microsoft rep (Egghead? Window Wiper? What could they be called that's polite enough to type?) do? Fix your problem with XP and offer to sell you Vista? Fix your problem with Vista and offer you a high five? Fix the problem with your Mac and offer you a blank stare?

    OK; Zune vs. iPOD. Zune works with windows media player and Rhapsody. iPOD works with iTunes and Rhapsody. Both work with Rythmbox under Linux (which is what I use for my iPOD) so to me the only competitive edge is the how well iTunes works. If you don't like iTunes, there's no real difference to me.

    Xbox. Red Ring of Death. The only thing an MS store would be useful for and that would be making it easier to get your Xbox fixed.

    Here's the biggest rub; The heart of OSX is Linux. On my home PC I run Ubuntu and I can do EVERYTHING that can be done in Windows (including Office). E-V-E-R-Y-T-H-I-N-G and do it faster with rock solid stability. The interface is almost the same as OSX, which I run (10.4) on my G4. And it's free and has full online documentation and support. And has a 64 bit version. For free. I spent $150 for XP and MS wants $180 for Vista. When XP finally goes away that will be the end of my association with the $oft side.

  • Report this Comment On February 18, 2009, at 7:01 PM, elo8 wrote:

    John Tantillo typically posts weekly winner/loser post on his marketing blog. Microsoft has been the featured 'loser' multiple times, but last week, with the announcement that Microsoft would be opening retail stores and that David Portner would be heading up the effort, he named Microsoft the winner...for at least realizing that they need to make some changes... It will be interesting to see how things pan out.

    http://blog.marketingdoctor.tv/2009/02/14/brand-winners-and-...

  • Report this Comment On February 19, 2009, at 8:06 AM, shawn02155 wrote:

    Microsoft DOES have "cool" stuff in the pipeline, that I'd love to see and touch...

    Surface computers... Zunes (with Music Steering)... A Media Center HD PC, WiFi-connected to XBOX/Zune/MoBo/Mesh, GAMES DUH! (using Windows based graphics back ends).

    And come on... A good amount of "stuff" in Apple stores ISN'T Apple products... One entire side of the "ipod" aisle is 3rd party accessories... How much of the 2 1/2 aisles of software is by Apple?

    Microsoft can do the same pushing accessories, joysticks, mice/keyboards, etc.

    I think it's a good idea... And it will certainly give me a place to swing by at the mall, instead of the iFan store.

  • Report this Comment On February 19, 2009, at 3:37 PM, Mikattt wrote:

    If done well the stores could help a good deal.

    First off, I think folks who see the new commercials might be curious enough to want to play with the new Vista or Windows 7 to see if they can manipulate photos or whatever as it is promised on TV. When you go into Best Buy today the sales folks (on a good day) can tell you about RAM and processors and all that, but they don't talk about the features in the operating system. The MS stores can focus on the software and I can imagine a knowledgeable person showing folks how to do the things they want to do and not just poke around as you do in Best Buy.

    The box stores (Target, Best Buy, etc.) do a terrible job of selling Zunes. They are certainly relegated to the side and the prices and such are often out of date. The demo models often aren't working or have no music with which to test the interface. You often see literature showing the old Zune. An MS store can hype the player and the software which many critics have highly praised.

    Microsoft has many cool things they could showcase, such as WMP, integrating Xbox as an extender, the Xbox online gaming and multiplayer experience, windows home server, and more. Few have experienced what an integrated system could do and it would be cool to see what they can do with their present tech.

    Microsoft could also showcase its touch technology, high definition picture format, photosyths, and other cool things to show it has the technological might to be a leader.

    Of course they could screw this up too, but I am hoping they go all out and do a great job of showing us what their software and other tech can really do.

  • Report this Comment On February 24, 2009, at 11:55 AM, l3iodeez wrote:

    Its amazing how 90% of comments concerning Apple are dogmatic tirades about how everything Apple does is brilliant and anything done by others is lame, even if they are the same thing.

    Microsoft finally has the right idea here. The one reason Apple has been successful is that that they control all aspects of the computing experience, OS, platform and peripherals (Want to use a third-party peripheral? Good luck!) For MS this is not, and should not be possible. MS has the obligation to provide much more choice for their customers. This is why they have a more difficult job to do at the support desk in their retail stores. This is also why the support desk is the THE most important component of the equation. They need to put real technicians in there, not slack jawed teenagers. All that MS stuff actually does work together, but you have to know what you are doing to an extent. Unfortunately there is no way to have the plug-and-go ease of a mac along with the use-any-peripheral versatility of the PC.

  • Report this Comment On February 28, 2009, at 2:42 AM, nicko168 wrote:

    Based on the past weeks, the stock market has been a place for the guys to rally & show their frustration towards "Robin Hood".So, no matter what stocks u thinking of..forget it....

    Ultimately, do you know who's the real fools? Ha..Ha..

    Real fools are the one who plunge their own economy to zero together with the $787 billion stimulus plan. Why?

    They'll be slapping their own face caused it opens up the opportunities & competition to the "third" world to buy all the "CHEAP" US Companies..Arabi, China, Kuwait & maybe Iran, Iraq etc...

    Based on the recent news, US companies are selling off thier valuable assets (technologies, bank etc) in order to pull through the crisis & who are they selling to? Make a guess....AIG went to China, Singapore etc selling off their stakes..Another is selling their US technologies or commodities caused they're ridden by billions of dollars debt....At the end of the crisis, what will the US companies who once holds the supremacy in technologies, banking etc become? "Zero" is my answer...

    Who the losers? The real losers are the next generation facing the real US....

    There's a old chinese teaching:

    "To break one chopstick is easy..

    To break a bunch of chopstick, is difficult"

    To the real fools, WATCH OUT!!! Ha..Ha...

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