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Thursday, July 14, 2011

Tech / Retail Viewing the World Through Rose-Colored Windows

Posted by Goldy on Thu, Jul 14, 2011 at 6:51 PM

Ten years after Apple opened its first retail store, Microsoft is finally ready to follow suit in a big way, announcing plans to open 75 new Microsoft Stores over the next two years, on top of the 11 stores it opened over the past two. Why the interest in massively expanding its retail presence? Well, it might have something to do with this:

Booming demand for the technology giant's iPhone, iPad and Macintosh personal computers has made Apple (AAPL) the fastest-growing major retailer in terms of sales growth in the U.S. In the first three months of 2011, Apple's U.S. sales rose by $4.6 billion, an 80% increase from a year ago.

That increase accounted for one-fifth of all sales growth by publicly traded retailers in the U.S. ...

Back in 2001, my namesake at Channel Marketing dissed the Apple Store concept, famously telling Businessweek: "I give them two years before they're turning out the lights on a very painful and expensive mistake." (See, not all David Goldsteins are infallible prognosticators.) But Steve Jobs had a few tricks up his sleeves. Shortly after the first Apple Stores starting sprouting up in malls nationwide, Apple introduced the iPod. Then the iPhone. Then the iPad. Apple Stores now generating some of the highest revenues per square foot in all of retail.

Perhaps Steve Ballmer is similarly tricksy, so far be it from me to question the wisdom of Microsoft's retail initiative. But if building out a chain of Microsoft Stores is such a good idea, isn't it fair to ask why the fuck it took them so long?

And that in the end sums up much of the frustration felt by many Microsoft observers... the sense that, rather than leading the industry, Microsoft has been reactive for years, and lumbering at that. It took five years for Microsoft to respond to the iPod with Zune, three years to follow the iPhone with Windows Phone 7, and it won't be until at least two years after the introduction of the iPad before the first Windows 8 tablet hits the market. If not for the amazing (and amazingly successful) Kinect, it would be fair to wonder if Microsoft had lost its ability to innovate.

Sure, Microsoft remains staggeringly profitable, largely due to its Windows and Office near-monopolies, with "Server and Tools" also providing a bright spot on the profit loss statement (Microsoft is looking more and more like IBM everyday). But Xbox profits amount to little more than static, while Microsoft's online services operate at a perpetual loss. No wonder MSFT's stock price has remained stagnant for just about ever.

And Microsoft isn't just coasting on its past success, it appears to be completely blinded by it, viewing the entire world of innovation through rose-colored windows. When iPod sales started to really take off, Bill Gates dismissed the product's sustainability, arguing that Windows CE powered smartphones would soon swallow the MP3 player market:

"You can make parallels with computers: Apple was very strong in this field before, with its Macintosh and its graphics user interface — like the iPod today — and then lost its position," Gates said.

A couple years later, when Apple introduced the game-changing iPhone, Ballmer laughed that there was "no chance" that the gadget would gain significant market share. And in 2010, when Apple showed off the iPad, Gates was once again unimpressed, this time with Apple's take on tablet computing: "I still think that some mixture of voice, the pen and a real keyboard — in other words, a netbook — will be the mainstream on that."

That seems to be Microsoft's strategy for everything. You know, slap a copy of Windows on it.

Or in it. Now Ballmer wants to duplicate Apple's retail success by matching the iEverything juggernaut store for store, because... well... because. I mean, I suppose you could make parallels between retail and computers: Apple was very strong in this field before, with its Macintosh and its graphics user interface — like the Apple Store today — and then lost its position. Or something.

No doubt this thread will fill with commenters dismissing me as an Apple fan-boy, and that's fair enough. I've developed, published, and supported software for both platforms, but have long preferred Apple products for my personal use. (And for the sake of disclosure, I once again remind folks that I also own a few shares of AAPL in my IRA.) So diss away on my partisanship. I'm okay with that.

But what I fail to understand is the unbounded confidence Microsoft boosters seem to have in the company's ability to out-innovate/out-market/out-compete their competition, when they haven't managed to achieve that trifecta in a new product category for well-nigh twenty years.

Comments (42) RSS

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A word on the Kinect: The funny thing about it is that in terms of gameplay, it's a silly boondoggle that provides no real advantage over a standard gamepad and is worse in most ways. It's a cool piece of tech, to be sure, but it's becoming more and more clear that most people only bought it because of that coolness factor. It remains to be seen whether any developers will leverage it into anything truly unique instead of just making shitty shovelware.

Posted by DeaconBlues

on July 14, 2011 at 6:58 PM

How many people (not company purchasing departments) buy anything Microsoft other than an OS update or an Xbox? Apple stores centralize hugely successful consumer devices (iPods, iPhones, iPads) along with Macintosh hardware. MS isn't in the hardware biz in the same way that Apple is, and never will be.

Posted by tiktok on July 14, 2011 at 7:16 PM

Kinect may have been an innovation, but it too was a reaction- a reaction to the surprising success of the Nintendo Wii's motion controller.

Posted by UNPAID COMMENTER on July 14, 2011 at 7:19 PM

I think Microsoft is starting to come around and realize that they can't just fall back on Windows and Office to remain profitable, they are quickly losing relevancy in the consumer-space. But WP7 is gorgeous (if not yet a hit), the 360 is still kicking ass, and the new interface for Windows 8 is pretty solid, although untested.

ThisIsMyNext has a pretty decent write-up about Microsoft and Windows in the "post-PC era":
http://thisismynext.com/2011/07/14/micro…

As an Android and OS X using Seattle native, I hope MSFT succeeds

Posted by noodler on July 14, 2011 at 7:35 PM

@1 - Microsoft failed to see all of the possible applications for their Kinect game controller, as all the hackers that bought one and made it do amazing things can attest to.

http://www.kinecthacks.com/

Posted by Soupytwist

on July 14, 2011 at 7:37 PM

i have no idea what would make anyone go to a Microsoft store ..they look like the Pottery Barn version of the Apple store. Microsoft wants to out Apple Apple, yet they are afraid of design and have no idea how to speak to consumers, 2 things Apple excels at. Microsoft needs to understand what their retail environments are about and if they don’t then consumers won’t ... I wish them luck but my gut says their stores will be a great big Zune.

Posted by olive oyl on July 14, 2011 at 7:45 PM

The Apple Stores are a tiny part of the reason Apple's profits are high, and I very much doubt they're money-makers on their own. They're brand-emphasizers. Most of them don't earn enough to pay their rent -- especially in some of their high-profile locations. It's a place to futz with the stupid things and decide that, yeah, it's a cool thing, I should get one.

I'm not sure how that works for Microsoft. They are increasingly not really a consumer-product company; it's their server software that puts them ahead of the game. No one is going to go to a Microsoft Store to check out Exchange or SQL Server.

XBOX? Kinect? Nobody has any questions about those, do they? They're cool, but you buy those online, right? You can't base your store around just the mouses, right? Microsoft does make the best mouses, and always has, but it's not going to keep shops afloat.

Posted by Fnarf

on July 14, 2011 at 8:12 PM

The Microsoft stores have XBOXes and stuff, and MS software, but most of the space is taken up by third party machines- your dells and your HPs and whatnot. So MS doesn't really want for stuff to stock their stores with even if they don't really put their own name on anything in particular.

So, now you have a glitzy place to buy Windows-running hardware and XBOX stuff from smarmy, attractive salespeople the way you've had a place to buy MacOS-running hardware and iPods from smarmy, attractive salespeople. Some people will dig that! People who didn't like Microsoft to begin with will not have their minds changed! Apple continues to be the trendsetter! The status quo is maintained.

(disclosure alert: I work for Microsoft in their retail division. I even got a company-wide email today talking about disclosure guidelines in social media saying, 'by the way, you have to tell them you work for Microsoft.')

Posted by Zebes

on July 14, 2011 at 8:23 PM

Those flying cars are just a fad. A fad, I say!

Posted by Daddy Love on July 14, 2011 at 8:26 PM

I feel like the problem is that there really is very little difference that I can think of between a Microsoft Store and a CompUSA (something that has been dying in the Age Of Best Buy). What is it going to have, exactly, that a Best Buy wouldn't? Or any other electronics store? Apple works because they are the sole creators of their products. Sure Best Buy also sells them, but not nearly as thoroughly as their own store or website. Microsoft computers, however? Yeah- that's pretty much the majority of BB and other electronic stores' real estate.

So yeah- not really sure what the point is other than trying yet again to rip off the model of Apple/competitors. More power to them, but I'm not sure they are barking up the right tree.

Posted by Aedan Robinson on July 14, 2011 at 8:30 PM

Apple Stores are Disneyland. Microsoft Stores are the county fair.

Posted by DOUG.

on July 14, 2011 at 8:37 PM

microsoft.sux.&.blows.

Posted by microsoft.sux.&.blows. on July 14, 2011 at 8:44 PM

I won't put my shit on a cloud. Ever

Posted by lauramae on July 14, 2011 at 8:51 PM

There's a Microsoft store directly across from the Apple store in mall of america. Guess which had more people? The Microsoft store was flooded with people and a lot of cool stuff, a lot of which I hadn't seen before.

Posted by prompt on July 14, 2011 at 9:04 PM

Most of them don't earn enough to pay their rent -- especially in some of their high-profile locations.

I'd be interested to know what this assertion is based on. I keep reading the stores have among the highest profit-per-square foot in all of retail. If what you say is true, that would suggest a handfull of stores must be bringing in astronomical amounts to make up for the ones that aren't paying their rent.

Posted by piminnowcheez on July 14, 2011 at 9:24 PM

I'm thinking the Microsoft store will look like the Sony store at U-Village: full of things to buy, and no-one in there buying them. People buy plenty of Sony products, but not from a Sony store.

Posted by tiktok on July 14, 2011 at 9:40 PM

Apple Stores have the highest profit per square meterage in retail? Good grief. I assumed they were loss leaders for people to look at their products before buying them cheaper online. I can understand somebody buying a cable or an iTunes gift card, but everything else is cheaper online surely? I bought a shuffle for 75% of the price on the internet. The really expensive stuff must be really really expensive in the Apple Stores.

Posted by Camembert on July 14, 2011 at 9:46 PM

From MacWorld:

"One metric used to measure the financials of a retail store is sales per square foot, which is the average revenue generated for every square foot of sales space. This metric is used to gauge the efficiency of a retail operation; the higher the sales per square foot, the better. Jeweler Tiffany & Company’s $2700 per square foot used to be considered the gold standard, but Apple has surpassed Tiffany, generating more than $4000 in sales per square foot. By comparison, Best Buy’s sales per square foot is about $1000, and Walmart's is about $400."

Posted by DOUG.

on July 14, 2011 at 9:51 PM

Apple has a culture than Microsoft will never replicate. I had an very cool experience in an Apple store recently when I took my mom to buy a new iBook. The person who helped us was a woman almost my mother's age (65). I just can't see that in a Microsoft store.

Posted by AppleCapital on July 14, 2011 at 10:20 PM

Chromebooks?

They're selling like hotcakes on Amazon... 3 Cbooks are in the top ten!

Posted by Supreme Ruler Of The Universe

on July 14, 2011 at 10:32 PM

@7: The best mouses, what? No, they haven't. Intellimice have always been adequate, but nowhere near the best. Logitech is superior just in terms of specs and arguably ergonomics, and you need to define your application- what's best for someone who plays far too much Team Fortress 2, like myself, is not going to be best for someone who still has a Hotmail account.

Posted by DeaconBlues

on July 14, 2011 at 10:35 PM

@18: "From MacWorld:"

Uh-huh.

Posted by Fnarf

on July 14, 2011 at 10:39 PM

@14 -- I visit the Mall of America about once every other month. Every time I've counted heads, the Apple store has significantly higher numbers of customers/browsers than the Microsoft store. On one occasion, I counted more sales staff than customers in the Microsoft store.

Posted by midwaypete on July 14, 2011 at 10:57 PM

Fnarf @22,

Really? You're going to diss the numbers because they're from MacWorld? Then how about the WSJ via PC Magazine?

The Apple Stores make bucks. Lots of 'em. One of the biggest successes in retail over the past decade.

Posted by Goldy on July 14, 2011 at 11:17 PM

@5: "Microsoft failed to see all of the possible applications for their Kinect game controller ..."

Of course -- but they knew it would be a great thing, and not just for games. Did Apple see all the possible applications for the iPhone?

Posted by yuiop on July 14, 2011 at 11:21 PM

Well, Fnarf might be wrong about the profitability of Apple stores (perish the thought!), but he's so, so right about the power of Microsoft's server stuff. Mister TVDinner is a professional nerd, and he sometimes explains what he can do building big-ass networks across crazy distances, and they're using Server 2008 and a bunch of Cisco what-have-yous.

Anyway, it's impressive stuff. As much as I hate so many things about their business model and the way they've treated their employees, well, I gotta give 'em props for Server.

Posted by TVDinner

on July 14, 2011 at 11:39 PM

@23 I suppose it's possible. I saw plenty of people in the Apple store too, but the only time I was there the Microsoft store was packed, kids playing Kinect and touchscreen everything. I have to admit though, looking at the prices compared to the hardware, I thought Microsoft was significantly cheaper. The Microsoft store did have an almost identical layout to the Apple store.

Posted by prompt on July 14, 2011 at 11:54 PM

related: I think it was linked to before on here, but here's video of Steve Jobs introducing the Apple Store in 2001...

http://www.youtube.com/watch?v=xLTNfIaL5…

Posted by stinkbug on July 15, 2011 at 12:05 AM

Every time I walk past the Microsoft store in Bell Square I feel embarrassed for Microsoft. The store is almost always completely empty just 50 feet north is the Apple store utterly jam packed with people.

That being said, the one time I had to take my son's XBox into the store for repair, the team was great.

Posted by I Got Nuthin' on July 15, 2011 at 1:02 AM

I was just in an Apple store the other day and saw more than a dozen employees. I thought that was extremely high (most stores of the same size might have three or four, max, out on the floor), but if they're making that much money, no wonder.

Posted by Matt from Denver on July 15, 2011 at 3:50 AM

Just go to Belle Square and take a look at both the MS and Apple stores. The Apple store is half the size of the MS store, and so when they have a couple dozen customers (which is always) it is almost impossible to move around and it's a mad house. You feel a part of a phenomenon and even sort of related to the other customers.
The MS store is huge and sprawling by comparison, and so even if they have the same number of customers (doubtful) it seems dead and empty. And why do I need to go into one? I can get a Windows phone at a phone store, Windows comes on the computer I can buy online, and Xbox and games I can get at Best Buy.

Posted by NaFun

on July 15, 2011 at 4:45 AM

"Windows CE powered smartphones would soon swallow the MP3 player market"

Replace Windows CE with IOS and Android and he's probably right. Although "soon" might've been a bit of a stretch.

Posted by digitalwitch on July 15, 2011 at 10:05 AM

Shocked that you didn't mention the biggest reason Apple's retail chain has succeeded...

The Apple Store works because it's an all-in-one Apple solution house. My iPad broke the other day, and for most gizmo companies, that'd require a long conversation on a customer service line, waiting for the company to send me a return kit, dealing with warranty double-checks, and other potentially arduous red tape. And that's if I even call the right company in question--between the software maker, the hardware maker and (in many cases) the service provider, where does the buck stop?

In my case, I walked into the Apple Store, handed my broken iPad to a "Genius," and was handed a brand-new replacement not even five minutes later as part of my one-year hardware warranty. The guy even bent over backwards to apologize for having to wait. Best of all, this was an iPad purchased in China (long story). At no point was I given guff for an "out-of-region" iPad or anything. I'm a build-yr-own-PC kind of geek, but even I appreciated this simplicity. What of the compu-phobic computer, laptop, or phone buyer?

Windows works with too many third-party partners to deliver such service when a customer's in dire straits. Or, at least, that's the impression I've had whenever I've reached out to MS for help with a computer issue. "We're just Windows. You need to contact your vendor." If Microsoft's stores want to convert a whole new mess of shoppers, they need to get a message of service out to the populace--that they can help you with ANY laptop or ANY WP7 phone on ANY carrier.

Posted by Sam Machkovech

on July 15, 2011 at 10:46 AM

The one thing I took away from doing contract work at Microsoft was that management very rarely thinks outside of their own brick and mortar. "This can't be good because we would've thought of it already." (Keyword: management)

Posted by The CHZA on July 15, 2011 at 11:35 AM

Microsoft has always been reactionary. Some examples:

Mac OS > Windows
Word Perfect > Word
Lotus 123 > Excel
Lotus Notes > Exchange/Outlook/Sharepoint
Netscape > Internet Explorer
Webmail > Bought Hotmail
Palm Pilot > Windows CE > Windows Mobile
Sidekick > Buy Danger > Kin > Kill Kin and Danger
iPod > Zune
Playstation > Xbox
Google > Bing
iPhone > Windows Phone 7 (I suppose)
Wii > Xbox Kinnect

Innovation:
Surface > have you seen one?
Courier > killed
PC Tablet > failed
Office Ribbon > useless, hated, but $$$$ for upgrades

Posted by davidLBC on July 15, 2011 at 12:26 PM

Posted by davidLBC on July 15, 2011 at 12:33 PM

It took them so long because it's a terrible idea. Microsoft is desperate now. The only product they have that's worth a shit is XBOX and connect. And nobody cares about going to a Microsoft Store for that. Nobody.

This is going to fail so hard. The only good thing about will be that it might, just might, help get rid of dinosaurs like Ballmer. And then maybe Microsoft can establish a vision again.

Posted by tkc on July 15, 2011 at 12:38 PM

Fnarf - It's be awesome if you'd either admit when your wrong. Or. Put up some sort of cites of your own to support your assertions.

Posted by tkc on July 15, 2011 at 12:42 PM

... That's what I thought.

Posted by tkc on July 15, 2011 at 4:02 PM

leave it to fnarf to spout a bunch of completely made-up horseshit, and when someone calls him on it, he gets all huffy

in fnarf's made-up world, apple runs a worldwide chain of money-losing storefronts (yet somehow makes record profits) and microsoft isn't a consumer-focused company anymore (despite their software shipping on 9999.999999999% of PCs worldwide)

please, just shut the fuck up and never open your fat manchild food hole ever again. you are the worst kind of awful pale nerd internet commenter who thinks he knows everything under the sun. you would scoff at bill gates telling you how the shit went down in the mid-90s PC biz.

Posted by shutupnerd on July 15, 2011 at 7:58 PM

@36
Two things: Mac OS is not better than Windows. Comparing the Wii, a fully-fledged game console, to the Kinect, an accessory, is like comparing a sandwich to some crust.

Posted by DeaconBlues

on July 15, 2011 at 10:11 PM

Teens and younger 20somethings drive the tech market, and their choices are highly influenced by cool. Microsoft will never be cool. Microsoft stores are your dad putting on parachute pants and doing the running man.

Posted by Park on July 17, 2011 at 10:06 AM