Microsoft today announced it's struck a deal with Best Buy to create 600 stores-within-stores in the U.S. and Canada to sell customers on Windows 8, the Surface tablet line, and new PCs and devices from other OEMs.
The move, which Microsoft characterized as a strategic partnership but declined to disclose details of its financial commitment, earned cautious praise from analysts, some who saw it as long overdue.
"This could move the needle for Microsoft," said Patrick Moorhead, principal analyst with Moor Insights & Strategy. "Along with more touchscreens, less-expensive touch devices and more convertible devices, this could very well move the needle."
Microsoft has had a tough time "moving the needle" since the launch last year of Windows 8 and its less-functional spin-off Windows RT; traditional PC sales have continued to slide and Windows-powered tablets have yet to gain significant sales traction.
"This makes a lot of sense to the American consumer, who get this store-in-a-store idea," said Moorhead, citing earlier examples, such as Apple's similar partnership with Best Buy, which started in 2007, and the April start by Samsung to insert 1,400 mini-stores in the electronics chain's outlets. "They get the value of that."
J.P. Gownder of Forrester Research also gave the partnership a thumbs-up, but added that Microsoft is late to the party. "Microsoft's Windows Store represents a vital strategic step forward in its retail strategy and ought to yield some benefits," Gownder wrote on his work blog. "At the same time, the move should have happened several years ago; it isn't quite as ambitious as it might have been, and Microsoft will have to work hard to overcome legacy practices within the Best Buy ecosystem."
Microsoft will do more than build a miniature "store" inside Best Buy, as Samsung is doing and Apple has done. The Windows Store will, in fact, essentially replace Best Buy's entire computer department in the 600 stores, 500 of them in the U.S., the remainder in Canada.
The space will be huge in comparison to the Apple and Samsung spots, 1,500 to 2,200 square feet, Microsoft said. The bulk of the employees, some 1,200, will be Best Buy workers trained by Microsoft. The latter will add 100 or so of its own field workers to the mix.
Even with that commitment, Gownder and Stephen Baker, a retail analyst with the NPD Group, were unsure whether the new retail outlets will be enough to drag Windows 8 out of its doldrums, invigorate the traditional PC market, and entice consumers to take up the new -- and in some cases, radical -- form factors, like notebooks that convert into tablets or hybrid designs, such as Microsoft's own Surface tablets. When armed with a keyboard, the Surface can serve as an ultra-light laptop.
"How much the Windows Store can move the needle on the overall market remains to be seen," said a skeptical Gownder, who nonetheless acknowledged the move gives Microsoft "a powerful asset in selling Windows 8.1 devices and other consumer offerings." Windows 8.1 is the official name for the Windows 8 upgrade that will launch as a public preview June 26, and officially ship this fall.
"What's Microsoft's thinking here? It's the same thing it's trying to do with its own stores, get more control over the Windows in-store and selling experience," said Baker. "They're trying to do what they can to improve that experience and make it more competitive with the Apple experience."
Microsoft will remodel the computer departments of about half of Best Buy's U.S. and Canadian outlets, turning them into Windows Stores to pitch the company's products as well as those of its OEM partners. (Image: Microsoft.)
Apple's chain, the majority of which is in the U.S., is widely seen as the top-tier benchmark in electronics retailing.
Last month, both Moorhead and Baker criticized the retailing of Windows 8, Windows RT and the devices powered by the two new operating systems. They slammed retailers, especially big-box chains, for a slew of mistakes, all of which contributed to an inability to effectively merchandise the new Windows 8 touch-enabled devices, as well as the more-or-less traditional PCs running the OS.
The in-Best Buy Windows Stores are Microsoft's answer. "This shows that Microsoft understands that the requirements to merchandise Windows 8 are higher than [for preceding versions of Windows]," said Baker. "This gives Microsoft the chance to make sure that any of those support hurdles to sell Windows 8 and 8.1 are met, and clearly starts them down the road to creating a more competitive experience."
That control won't be complete, according to the analysts who had been briefed by Microsoft.
Best Buy will retain control over product selection, inventory and pricing, but Microsoft will have some say in any special placement of other OEMs' products, said Moorhead.
That could create more tension between Microsoft and its OEM partners, adding to the already considerable strain in their relationships since Microsoft unveiled its Surface hardware a year ago. "It could make for more friction," Moorhead said. "Anything that changes the dynamic between manufacturers and retailers will. But the one with the biggest checkbook gets control, especially in retail."
Gownder echoed those concerns. "Microsoft's Windows OEM partners already have a bone to pick with Microsoft concerning the Surface," he said. "How will they feel about having to compete with Microsoft's own hardware in a Windows Store managed by Microsoft?"
But all three experts applauded the move into Best Buy, which will almost instantly expand Microsoft's retail footprint by nearly a factor of 10. Additionally, assuming the Microsoft-trained Best Buy workers are up to snuff, they should be able to better explain Windows 8 and the hardware, and help consumers make intelligent choices.
"This puts the onus on Microsoft to shore [up] the gap as it relates to the buying experience," said Moorhead. "With Windows 8, consumers were confused when they went into Best Buy. And if they're confused, they'll sit on the sidelines. The new form factors are different, and there needed to be an educational process."
Presumably, the better-trained staffers will be able to play that "teacher" role.
Ultimately, the proof will be in the selling, the analysts said. But Baker thought it was a brilliant decision on Microsoft's part because it will now have a place to poach rivals' customers.
"Best Buy sells every platform and brand," Baker said, ticking off Microsoft, Hewlett-Packard, Samsung, Apple and others. "The best place to capture a competitor's customer is in retail, where you're right next to your competitor. Microsoft will now have those opportunities."
