Questioning Microsoft's Retail Strategy

Rob Enderle

I woke up this morning to an article in on asking whether Steve Ballmer is insane, based on a news release from Microsoft. The news is the hiring of David Porter from DreamWorks to lead retail efforts. Now, to be clear, so far these retail efforts have largely been focused on research into how to optimize a store to sell technology. I've been personally interested in this because my first degree was in merchandising and my first executive position was in retail sales. It is somewhat ironic that I took that position shortly before a young Microsofty tried to recruit me. Had the events been timed differently, my life would have likely been vastly different. But this gives me some sense of what should, and should not, be done here. What strikes me as weird is that Microsoft is not announcing that it will open stores, just that it is considering it. The location, design, and even nature of the effort are for Porter to determine.


The Retail Environment and Apple Connection


I covered the launch of the Apple stores on May 19th in 2001, and actually did a CNet radio program with David Coursey (I co-hosted for them on the radio at the time) at the opening of one of the Silicon Valley stores. The problem that Apple was trying to address, and did address successfully, was the fact that its earlier store-in-store and shelf management efforts had largely failed. It was losing market share at the time. Apple was providing a premium product but few of the regular retail stores could provide a premium experience. Virtually none of them could consistently differentiate the Apple offering positively. So Apple addressed this with a very successful retail effort. It wasn't until 2003, though, when the iPod picked up Windows support, that the iPod really started to help store traffic.


Microsoft's Similar and Different Problem


What makes Microsoft different is that it is not a premium vendor. Its demographic covers the full range of offerings from the very low end all the way up to the very high end in gaming PCs. Unlike Apple, its offerings are complex. The true benefit it offers is in the breadth of the offerings and the ecosystem that lies behind them. These are concepts that gave Microsoft the market advantage that resulted in dominance. But, like Apple, in most stores there simply aren't the talents available to help either explain or sell the resulting benefits or help people achieve them once they've purchased the products.


In addition, under the current market conditions, Microsoft is losing shelf space with the closing of every tech store. In fact, tech retail in general is pulling back sharply with the market. With the exception of Best Buy, traditional retail tech stores seem be in danger of becoming extinct. The end result, if this trend continues, is a much smaller Microsoft. Thus, like Apple, it needs to find a way to reverse this negative trend. What that will be is up to Porter to find out. Speculating about the result, while fun, is a bit premature. Given his background is at Wal-Mart, one of the most successful broad product companies ever to exist, you would think success might at least be as likely as failure. Porter steps into an organization that has been researching, testing and building template stores on the Microsoft campus for several years in order to discover the best layout to sell technology products in general and Microsoft products in particular. This includes everything from point of purchase collateral and staging, to cash register location and shrinkage (theft) prevention. It is currently one of the most advanced retail labs in the world.


Is Steve Ballmer Insane?


Microsoft has a recognized problem in retail. It hires an expert with a background from the top retailer in the U.S. to address the problem rather than the more typical insider who has never done retail. This seems to be the right thing to do. When does a CEO hiring a qualified expert to answer a critical question become insane? In today's world where it seems entire industries are nuts, wouldn't it be nice if more CEOs hired people who actually had related skills? There are a number of decisions that Ballmer has made that I didn't agree with (Get the Facts comes to mind), but hiring someone qualified to do a critical job will never be one of them. So no, in this instance, Steve Ballmer is not insane and I wish there were more CEOs hiring qualified people to do critical jobs at the moment.

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