Bloomberg News

Microsoft in Deal With Best Buy to Promote Windows Computers (1)

June 13, 2013

Microsoft Corp. (MSFT:US) is teaming up with Best Buy Co. (BBY:US) to promote machines with its latest Windows 8 operating system as the software maker and electronics retailer try to combat the worst personal computer slump on record.

Microsoft is setting up its own Windows stores inside 500 Best Buy outlets in the U.S. and 100 in Canada, the companies said in a statement today. Other Microsoft products including the Windows Phone, Office software and Xbox gaming console will also be featured as part of the alliance.

Windows 8, an overhaul of Microsoft’s flagship operating system released in October to appeal to mobile users, has failed to reignite the ailing PC market, where shipments plummeted by their largest margin on record in the latest quarter, according to research firm IDC. Best Buy, the world’s largest consumer-electronics retailer, posted an $81 million first-quarter loss amid mounting online competition.

As part of the agreement, Redmond, Washington-based Microsoft will train more than 1,200 Best Buy salespeople to work in the dedicated Windows shops, which will occupy from 1,500 to 2,200 square feet. Space will be set aside to highlight notebooks and PCs, as well as Microsoft’s Surface tablet.

The stores will also showcase how various Microsoft products work together, a selling strategy that has been effective for devices running Apple Inc. (AAPL:US)’s iOS operating system and Google Inc.’s Android software.

‘Windows Experience’

“It’s the iOS experience, it’s the Android experience and we want a shopping environment that really shows what we think is the Windows experience,” Chris Capossela, Microsoft’s chief marketing officer, said in an interview.

Microsoft has been trying to generate more enthusiasm for its products by opening its own retail outlets, a move that has proved successful for Apple. Even before Windows 8 went on sale, Microsoft had been struggling with the inability of outside retailers to effectively display its products and ensure that staff understood the technology.

Windows 8 made it even more important for Microsoft to improve communication with consumers. Sales staff have to articulate the difference between the main version of Windows 8 and Windows RT, a variation for tablets with ARM Holdings Plc-based chips, Tami Reller, Windows chief financial officer, said an interview last month. Then, they also have to explain Microsoft’s first foray into hardware, the Surface.

Samsung Mini-Stores

“If you look at Best Buy in the U.S., 70 percent of Americans are within 10 minutes of a Best Buy,” Reller said in an interview today on Bloomberg Television. “We see them definitely going into Best Buy to take a look at the products, test them, try them, see what makes most sense for them.”

Microsoft follows Samsung Electronics Co. in striking an agreement with Best Buy, based in Richfield, Minnesota. Hubert Joly, the retailer’s CEO, is working to lure more customers to his more than 1,000 U.S. locations amid rising competition from Amazon.com Inc. and other Web rivals.

The stores are 10 times the size of Apple’s stores inside Best Buy and five times bigger than the Samsung ones, said Capossela. Three pilot stores are opening today, and all of them should be up and running by September, he said.

In April, Samsung started opening mini-stores in Best Buy outlets staffed by its own employees with expertise to demonstrate new features of its devices such as the Galaxy S4 phone. That’s an advantage for Best Buy compared to Internet retailers that don’t have physical locations for consumers to test gadgets, according to Joly.

Price Matching

Earlier this year, Best Buy made permanent its holiday policy of matching Internet competitors’ prices, cutting down on “showrooming” by consumers who visit the retailer’s outlets and buy items cheaper online later, Joly said.

Samsung is spending a portion of its marketing budget to generate traffic to Best Buy stores, he told analysts last month. “We’re the only place of scale in the U.S. where they can showcase the fruit of the billions of dollars of R&D investment they make every year,” Joly said at a Sanford C. Bernstein & Co. conference.

While Microsoft has sold more than 100 million licenses to use Windows 8, the product has failed to gain more than a few percentage points of market share in the tablet computers, a challenge for Microsoft as customers avoid purchasing notebook machines in favor of handheld devices like Apple’s iPad and machines made by Amazon and Samsung.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • MSFT
    (Microsoft Corp)
    • $47.47 USD
    • -0.12
    • -0.25%
  • BBY
    (Best Buy Co Inc)
    • $38.41 USD
    • -0.49
    • -1.28%
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