Microsoft and Retail - Tempting but Risky

Implications: Microsoft would love to better control its retail presence to lift its profile among consumers.  Microsoft’s lack of retail experience, history of indirect sales, and the daunting economics of retail make a full-blown retail expansion effort risky.

Analysis: Microsoft’s desire to increase their retail exposure and communicate directly with customers is logical.  With their Xbox, Zune, Surface, Danger and Windows Mobile product lines, to go along with their core software and accessories businesses, Microsoft’s product portfolio is increasingly customer facing.  In addition to promoting its product suite, Microsoft has been trying for years, with limited success, to show off its vision of the Connected Home.  At several technology and wireless tradeshows, Microsoft has teamed up with partners to display its vision of sharing content among various media appliances.  

A Microsoft retail outlet would be an excellent venue in theory - Microsoft could promote and sell its current product suite as well as educate and entice consumers about upcoming solutions, such as the connected home.  Retail, however, is a difficult business, and one for which Microsoft has shown little affinity or competence.  Apple’s retail success should not automatically lead Microsoft down the retail path as Apple and Microsoft have different histories, products / positioning, brands and consumer appeal.  Microsoft Surface, which they announced last year and are launching in places like Starwood hotels and AT&T retail stores, is an example of a customer facing technology that can be developed and sold in conjunction with retail partners.

Rather than a full-scale retail push, Microsoft should continue with lower risk endeavors (like the Surface project) and leverage their partners’ retail know-how.  Also there is the ongoing battle for Yahoo! and the future of online service and advertising which will require plenty of management attention.