Microsoft Stores Are Just The First Step

Apple has had a great decade of growth. The iPod, iPhone, and MacBook have all been wildly successful. During the same time, Microsoft has been stranded in the technology doldrums. So now, Microsoft is taking a page from Apple's book and planning to open retail stores that showcase Microsoft products. But I think there may be even more to come.Microsoft desperately needs to rehabilitate its brand. Some products like XBox and peripherals have a decent reputation, but others like Vista or Zune are -- fairly or not -- seen as disappointments. Robbie Bach, head of Microsoft's Entertainment and Devices division, describes the coming Microsoft stores this way:

Ever since Microsoft got IBM to license MS-DOS, the company has been part of a complex amalgam of its own software mixed with third-party hardware and software. Most consumers and businesses get their PCs from Original Equipment Manufacturers (OEMs) such as Acer, Dell, HP, or Lenovo. Sure, Windows comes on the PC, but to many users it's just a component like a DVD drive or backup software. Microsoft doesn't "own" that customer, the system maker does. That's just the way most OEMs want it.

As Bach points out, Microsoft stores will provide a way for the company to connect directly with customers, and OEMs will still deliver the bulk of Microsoft's products. There's just one problem. If Microsoft only sells its own current hardware, it will have a big hole where PCs are concerned. I don't think that hole will remain. Microsoft will need to have some OEM hardware partners in the store that showcase its main moneymakers, Windows and Office. Without them, it wouldn't be much of a store.

Or is there another plan? Last year I recommended another option, that Microsoft make its own PCs. If Microsoft opens its own stores, this would make even more sense. By selling its own Microsoft-branded PCs, Microsoft would own the entire customer relationship, including software, PCs, peripherals, and service. This could definitely happen; Zune and XBox are signs that Microsoft is no longer content to let OEMs dictate how Microsoft's software will be delivered to consumers.

This doesn't mean that Microsoft needs to abandon its historical dependence on OEMs; clearly the company would only sell a tiny fraction of PCs through its own stores. Yet it also could be a high-margin part of the PC business, just like Apple's stores. If Microsoft did the job right, its own PCs would set the standard for being the ideal Windows platform.