Microsoft's Retail Therapy Won't Solve Problems

• ByJason Notte, Staff Reporter
• On 5:00 am EDT, Friday October 23, 2009

REDMOND, Wash. (TheStreet) -- At Microsoft's Worldwide Partner Conference in July, chief operating officer Kevin Turner promised the company would open stores right next to Apple's.

A Microsoft spokeswoman says the company's first stores in Mission Viejo, Calif., and Scottsdale, Ariz., aren't promotional, Halloween store-style one-offs for the Windows 7 launch, but a big jump into brick-and-mortar retail. Microsoft may want to consider a new mission statement as well: We'll have what they're having.

"Microsoft executives preach about Microsoft innovation, but all they've done is become superb copiers and even that's not working so well anymore," says Charlie Wolf, an analyst at Needham & Co. "In the Apple stores, Apple sells a ton of Apple products, but what's Microsoft going to sell?"

Microsoft has plenty of products to line its store shelves. Originality just isn't one of them. The stores will likely stock the Xbox 360, whose predecessor, the Xbox, was released after Nintendo had already manufactured three different game consoles and Sony was already a console into its PlayStation series. The Xbox was trounced by the PlayStation 2 in sales and the 360 has been a regular runner-up to Nintendo's Wii (until September, when it finished third behind the Wii and PS3, according to NPD Group).

The stores also will stock the Zune, which came on the scene in 2006 after Apple cycled through five generations of its original iPod and several variations of its Mini, Nano and Shuffle derivatives. For the flakes who say the Zune isn't as cute as the iPod, its 3 million sales are just that when compared with the 220 million iPods sold to date.

If Microsoft decides to include Windows Mobile phones by carriers like HTC, it will do so as its share of the smart phone market shrinks. Both Gartner and Canalys put Windows Mobile's share of the smart phone market at 9% and falling. Granted, the technology developed as Research in Motion (18%) and Nokia Symbian (45%) products were taking off, but that's no excuse for lagging behind Apple's iPhone (13%). When Chief Executive Steve Ballmer says Microsoft "screwed up with Windows Mobile" when it launched the derided Windows Mobile 6.5, the Microsoft stores may need a bargain bin.

Though Microsoft is far from the only participant in the "me too" game -- Apple can trace its Macintosh's roots to a Xerox product -- it seems to know which mousetraps to build (or buy) better versions of. After Apple booked nearly $1.9 billion in revenue from its shiny glass shops last quarter -- up 25% from the previous three-month period -- Microsoft can't be blamed for wanting a bite of the action. If it wants to avoid a "value-destroying move," however, critics say it needs to replicate more than Apple's store locations and shelf stock.

"The Apple stores have done a terrific job of converting Windows users to the Mac," Wolf says. "The sales force there is very effective in pointing out that you get what you pay for."

-- Reported by Jason Notte in Boston.

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