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Microsoft Has An Idea That Investors Should Not Ignore

May 25, 2014 | About:
Vinay Singh

vinaysingh

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After giving floorspace to Samsung mini-stores Best Buy (BBY) is forging ahead with the strategy by announcing that Microsoft (MSFT) will open 500 mini-stores within the big-box retailer over the next few months. The Microsoft stores will be enormous, ranging from 1,500 to 2,200 square feet, and feature specially trained associates which can demonstrate all of Microsoft's products. While Microsoft has about 70 stand-alone Windows stores already, this move will allow the company to greatly expand its retail presence quickly and without the overhead of running its own stores. This seems like a good move for not only Microsoft but also for Best Buy.

What this means for Microsoft

The big problem with Windows 8 devices is that people's opinions are being shaped by what they read online about the operating system. And since much of the reviews and commentary are negative, citing a learning curve and a confusing interface, many are writing off the devices immediately. Microsoft can combat this by allowing people the chance to try the devices on a larger scale, and the Best Buy deal does exactly that.

With the upcoming release of Windows 8.1, a major update to Windows 8 which promises to fix many of the biggest complaints about the OS, these mini-stores give Microsoft a platform to showcase the updated OS and the devices which run it, as well as all of the Microsoft services. Microsoft could demonstrate how SkyDrive, its cloud storage system, allows users to access files from all of their devices. The company could push its Office 365 subscription, showing how documents can be accessed and edited from all devices seamlessly. The possibilities are endless.

The mini-stores will also showcase the Xbox, and with the release of the new Xbox One this fall the stores could give Microsoft an advantage over rival Sony. Xbox One is being positioned as a full home entertainment solution instead of just a gaming device, and showcasing its abilities to consumers could give a boost to sales.

What this means for Best Buy

Best Buy has been reducing the space it allocates for low-margin products like CDs and DVDs, and filling that space with these mini-stores should be much more profitable. Best Buy is the only national consumer electronics chain left, and thus provides a unique platform for companies like Samsung and Microsoft to demonstrate their products.

One thing to remember is that the average Best Buy shopper likely isn't well versed in technology. They haven't made up their mind about what tablet to buy before coming to the store, so the ability to have products demonstrated and explained by specially trained associates makes Best Buy an attractive place to shop. And with Best Buy matching the prices of online competitors the show-rooming effect should be minimized.

People like to try gadgets before buying them, giving Best Buy a distinct advantage over online retailers. The Microsoft deal is a big endorsement of Best Buy's new strategy, and I wouldn't be surprised to see more mini-stores being added to Best Buy over time. Apple has had a mini-store presence for years, but the huge Microsoft mini-stores along with the Samsung mini-stores may force Apple to expand its presence within Best Buy. This competition is good for both consumers and Best Buy.

Adoption of Windows phone in the US has been slow, but the Microsoft mini-stores will give consumers the opportunity to try out the devices firsthand. This is good news for Nokia, as more exposure will likely lead to higher sales. The newest Lumia phone, the Lumia 925, has received great reviews touting its exceptional camera and sleek design, and this gives Nokia a real competitor to high-end Android phones. The phone also features a metal shell, differentiating it from cheap-feeling phones made from plastic.

Getting people to hold the Lumia 925 in their hands is the best way for Nokia to build awareness of the quality phones which the company is making, and the Microsoft mini-stores are the perfect venue for this.

The bottom line

The Microsoft mini-stores are a positive for everyone involved. Microsoft and Nokia will benefit from the increased exposure as customers try out the devices, and trained sales associates will be able to tout the many features of Windows 8 and Windows phone. For Best Buy, this deal validates its new strategy and fills the void left by removing much of the CD and DVD section of the stores. Best Buy is taking steps towards becoming the premier destination for consumer electronics once again, and the steps are in the right direction.


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