retail – Tech.pinions

Windows 8: Tepid Marketing–>Slow Sales

Kind of sad, isn’t it? This sorry attempt at a festive display of new PCs at a Micro Center store in Rockville, MD, says a lot about the thud with which Windows 8 seems to have landed.

Windows guru Paul Thurrott recently reported that Win 8 sales are running below Microsoft’s expectations. Microsoft executives, Thurrott says, put much of the blame on OEM partners for being late to market with exciting hardware. But much of the problem may be closer to home. Neither Microsoft nor its retail partners seem to be making all that great an effort to sell new systems, especially compared to past efforts.

This week, I stopped by several big box retailers, the sort that generate most of the sales of Windows PCs, and what I saw was dispiriting. Instead of the end caps, banners, ceiling-high stacks of boxed software, and the occasional brass band that accompanied past Windows launches, I saw a distinctly low key effort. Windows 8 has only a modest presence on TV–most of Microsoft’s ad buy is dedicated to Surface, which is sold only online and in Microsoft’s own sparse retail outlets–and I saw no sign of any Microsoft promotional effort at my local Best Buy, Staples, Microcenter, or H.H. Gregg. In fact, the display below, at Staples, was about as flashy as it got:

Now it is a fact of life in retailing that vendors literally get what they pay for in terms of shelf position, end-cap displays, store advertising, and other promotion. It appears Microsoft isn’t paying much this time around. It doesn’t help that Microsoft is not, at least at this point, selling Windows 8 as physical media, so there are no in-store displays of the software itself. Still, it’s telling that Windows is missing from this row of promotional posters at the Micro Center entrance:

On the shelves, things are just as bad. The main selling point for Windows 8 is touch, but most of the new touch models have yet to come to market. Laptops are generally grouped by price, sometimes by size. In no case did I see touch models grouped together or in any way featured. Best Buy at least had little tags on some non-touch models proclaiming their lack of touch screens, but otherwise, you had to figure it out for yourself, either by reading the detailed product descriptions or by touching the screen and seeing whether anything happened. (A clue: If it costs less than $1,000, it probably doesn’t has a touch screen.) In most stores, there are some Windows 7 machines mixed in among the newer models, and I wouldn’t be surprised if few shoppers managed to figure out just what was supposed to be superior about Windows 8.

Unless Microsoft is going to open a whole lot more of its own stores (there is only one full-fledged Microsoft Store in the Washington area–in Arlington, Va.,–and just two pop-up stores, really glorified mall kiosks, in the entire state of Maryland), it should work with OEMs and retailers to do something to improve a horrible shopping experience. Most of the machines I saw on shelves made it impossible to get any sort of meaningful Windows 8 experience. Many of the machines were dead, or were locked into demo screen shows. Of those that were running Windows 8, almost none were both connected to the internet and linked to a Microsoft account, two features necessary to understanding what the new OS is all about. And while I understand the need of retailers to keep stock from walking off, their approach to theft prevention is lethal to sales. For example, it’s impossible to get a real sense of the sleekness of this Hewlett-Packard Spectre XT Ultrabrook at Staples with that horrible anti-theft clamp and cable device on its side:

Even worse was a similar clamp (at Best Buy) that prevented a Lenovo Yoga convertible notebook/tablet from going through its agile tricks.

I only ran into one true Windows tablet in my shopping tour, a $600 Asus Vivo Tab RT. To my complete lack of surprise, the display was free of any information on the differences between its Windows RT software and the full Windows 8 on the systems surrounding it, another bit of consumer education that Microsoft is sorely ignoring.

Microsoft’s Retail Gamble

Over the weekend, I went to Microsoft’s large store that is in the Westfield Shopping Center in San Jose. Like a few similar Microsoft stores, it is across from an Apple store and I suspect that Microsoft is hoping to lure some potential Apple product buyers away from Apple with this strategy.

Luckily, there are seats right outside Microsoft’s store, so as I waited for my wife, who was off shopping, I planted myself in these cushy chairs the mall has and just watched people come and go through Microsoft’s doors. The first time I did this was mid week, three days after the store opened to much fanfare. I watched the store for 45 minutes that day and in that time frame, Apple hosted about 130 customers while the Microsoft store had only about 12 visitors. Even more troubling at the time, the 12 that did go in, came out empty handed, while well over 20 people left Apple’s stores with iPads, Macbooks, and even two iMacs were sold.

This was before the launch of Windows 8 and Microsoft’s Surface tablet. So this time I assumed that the Microsoft store would have a lot more customers, and they did. I counted about 40 in the store this time. However, during the 45 minutes I sat out front of the store, I saw nobody leaving the store with any Microsoft product at all. But across the way at Apple’s store they had about 120 people inside and a line of 30 outside waiting to pick up preordered iPad Mini’s and the new iPad 4. And I counted at least 35 people carrying Apple products out the door while sitting there.

The good news for Microsoft is that people who were in the store were checking out the Surface, Windows 8 and many of the laptops and touch based ultrabooks that were on display. But the bad news is that most of them were Looky-Lou’s, drawn in mostly to see the new Windows 8 touch OS and the much advertised Surface. Also, while every salesperson in Apple’s store was engaged with a customer, I counted 6 Microsoft store employees standing around trying to look busy.

The Changing Retail Frontier

Now, I realize that Microsoft is new to the retail game, while Apple has been perfecting their store concepts for over 10 years. And my “research” was not scientific in any way and was just observations by me, a pretty seasoned market researcher trained to observe consumer buying patterns and usage models. I am sure that Microsoft sold many products of various sorts during the day, but by comparison with the Apple store across the way, I doubt it was even close to the daily sales Apple had in that store or any other store Apple has around the world.

Regardless of what Microsoft made that day in products sold, having their own retail stores is critical to them given the competitive landscape. I understand they will open at least a dozen new stores world wide in 2013 and more in the future. Of course, the competitive reason for doing so is because of Apple’s extreme success with their stores and how it has affected Microsoft’s fortunes. More importantly, Apple’s stores have reprogrammed how consumers think about buying tech products and getting personal service once they buy an Apple product.

In fact, I don’t think we can underestimate how the Apple stores have impacted retail in general. The idea of having a sales person standing there with an iPhone payment device and instantly checking a person out is revolutionary. And if you have the new Apple Store software app on your IOS device, you can even check yourself out now.
The man behind Apple’s stores, Ron Johnson, is now CEO at JC Penny’s and is trying to apply this same kind of store experience to a very old retail model. While he is having trouble getting this company to move quickly to be more user friendly, I have no doubt that he will eventually be successful in changing JC Penny’s retail model with new store designs as well as how people are eventually serviced.

Microsoft’s retail stores are important for them and the industry for another reason. All of their partners, except Sony, don’t have the money and the wherewithal to do their own stores and need to rely on Microsoft to become not only a dedicated retail outlet for their products, but to also serve as trained sales people who know the products and can intelligently sell them.

This will always be a problem for Microsoft retail since they carry dozens of different laptops, tablets and smartphones making it more difficult for their salespeople to know the products they sell intimately. This in fact has proven difficult in many big box retailing organizations as well with a highly diversified and fragmented product offering. In Apple’s case, they have key products with iOS and key products with the OS X and while they have many products in their mix, that mix is 10 times smaller than what Microsoft can sell through their stores. Consequently, Apple’s staff knows their products in and out and I am often surprised that even the non-genius staff can answer tough questions when I have gone into their stores and needed an answer about a problem I might be having at any given time.

When it comes to retail, Microsoft has no choice but to keep these stores going and expand their potential reach. And for most of their partners, they need Microsoft to serve as the only Windows focused retail outlet that can represent them properly. I have no clue when these stores will break even and be profitable, but Microsoft’s retail gamble is in full swing and they can not turn back if they plan to gain any ground on Apple and Google.

Convince Me Not to Buy an iPad

We at Creative Strategies, as a part of our study of consumer markets, frequently interview consumers in order to get a pulse of the market needs, wants, and desires. To do this we have conversations with groups of consumers in a specific part of the adoption curve. I was having a conversation with some folks who would not fall into the early adopter or the early majority but more toward the late majority of consumers. This group, unlike the early majority, represents the largest part of the consumer buying segment and one of the more interesting and diverse. Early adopters are predictable; the early and late majority are not. Their needs wants and desires are often more realistic, practical and nuanced, or one may say more down to earth.

During a recent interview I had an interviewee say something that got me thinking. When I asked a woman how strongly she would consider competing tablets, she said she was willing to consider other tablets but she would need to be convinced not to buy an iPad.

Why Should I Buy This Over That?

What many companies making personal technology products struggle with is address why this over that question. Often times they assume that a single feature can sway a consumer their way. Or some believe price is the ultimate factor. But the reality is that most consumers do not walk into a retail store genuinely unconvinced of what they want or are interested in when walking in the door. Generally speaking, when a consumer walks into a tech retailer to buy a tablet, they don’t walk in uneducated and hope to use retail to make a decision. Right now, since the iPad is the market leader, consumers are walking into retail thinking “I’m very interested in an iPad.” They have their mind mostly made up. For a competitor to have any shot at swaying these consumers, they need to convince them to not buy an iPad.

From our study of the early and late majority and the things they value and find desirable, I am convinced it is still an uphill battle for iPad competitors. This doesn’t mean this will always be true; just that it is right now. Take the iPhone for example. It took just over six years for a single product from a competitor to outsell the iPhone for just one quarter. And with the iPad no single tablet is even close.

The bar the iPad has set is so high that tablet competitors have resolved to try and change the conversation rather than go head to head with the iPad. This is a wise move but the tradeoff is that you focus more on a segment of the market rather than the mass market as a whole. Apple is having success targeting the larger mass market but competitors are having trouble making ground in this market. Again, I’m not saying this will always be true; just that its the current market sentiment.

All Things Being Equal

The challenge for companies trying to gain the attention of consumers is to avoid trying to just make all things equal. The key for competitors is to focus on differentiators that matter to the early and late majority, the biggest part of the market. We can debate all day what those features are, but I remain convinced that software, and specifically apps, are key in appealing to the desires of the market. And it is not just quantity but quality. Consumers want to know they are getting a tablet that will help them make the most of this new form factor.

When it comes to both Android and Windows 8 tablets, their keys to success will reside in the ability to have showcase apps that can not be found elsewhere. The example I like to use is the original XBOX and the game Halo. Halo for Microsoft’s original XBOX was a platform driver. This game alone paired with XBOX Live for online multiplayer play was one of, if not the, primary reason for many who bought the first XBOX. Microsoft was then able to keep many of these consumers loyal but Halo was the gateway to Microsoft’s gaming ecosystem.

Both Android and Microsoft tablets need software that would be considered platform drivers. This would be a step in the right direction to address the why buy this over that question. Perhaps for Microsoft Office will play this role although I am not convinced at least a point.

Ultimately consumers make trade offs in their own personal preference value chain. If they value price, they must evaluate the tradeoffs in things like design quality and cutting edge features or specs for example. Understanding the tradeoffs and having key differentiators are fundamentals to product strategy.

Tablets are tricky and because we are in the maturing cycle where consumers are still figuring out their needs, wants, and desires with them. Because of that, I remain convinced competing with the iPad will be a challenge. The next year will define much of the tablet category. Those companies who have clear and distinct differentiators that clearly make the case for consumer to buy this product over that have a shot. This applies to hardware, software, and services.

Consumers are buying iPad in droves. And if Apple releases a smaller less expensive version of the iPad they will make it even more difficult for competitors. Many millions of consumers are not being convinced to buy other tablets over iPads and they are researching their options more than many assume.

So the key to tablet success? Convince consumers not to buy iPads. Seems simple, but its not.

Why NFC is Irrelevant To the Mass Market

NFC technologies have been around for quite some time. Many years back my firm did some market analysis on NFC for Philips Semiconductor about the time it was spun off to become NXP. In doing this we spoke with retailers, merchants, payment gateways, etc., in order to better understand the infrastructure change necessary to fully deploy NFC. Without going into that in depth analysis, I will tell you that it is difficult and costly.

What Problem Does it Solve?

Due to the fairly extensive new infrastructure that would need to be deployed in order to broadly deploy NFC, retailers would need to be convinced that it would lead to more transactions in their stores AND not be something that goes by the wayside to some new technology in just a few years. Many retailers are already struggling and faced with significant challenges that need to be solved. They recognize that the mass majority of consumers are not out there clamoring for NFC nor even recognize the need or have the desire for a new payment process.

But the key to addressing NFC is to look at what problem it solves. Perhaps even better stated, does it solve a pain point in the payment process today. I would suggest that it does not.

Humans are creatures of habit. Keeping a number of credit cards in a wallet or purse and pulling out the correct one to make a purchase is not a massive inconvenience for many. The challenge with NFC is that its value proposition is only to replace credit cards in a commerce market. That is the only process it is addressing in a retail environment. Retailers have much more pressing problems to worry about. Like consumers using their stores to showroom and then go and buy online. Or other retailers rigorously competing to steal loyal customers, etc.

I am more interesting in technologies or opportunities to completely revolutionize the shopping experience. This is something NFC does not address.

Let’s Change the Shopping Experience

When thinking about how the future of shopping may be shaped, I like to use Apple stores as an example. It is possible with the Apple Store application to explore, learn, get help, and more, all from an application. This application is designed to make the in store experience more helpful and more engaging. Apple has also integrated into the application an easy pay method that allows you to scan the product you want to buy, and pay for it right there using your iTunes account. So without NFC, and no new infrastructure, Apple has integrated a simple and engaging experience as well as an opportunity to complete a transaction all without NFC. Apple is deploying more of a “closed-loop” payment system using their trusted relationship with the consumer and iTunes as a gateway. Exploring how apps and these “closed-loop” systems may benefit retailers is an interesting scenario to think though.

If I was a retailer would I rather invest in a massive amount of new infrastructure that only solves a payment gateway problem or invest in experiences like the one possible in Apple stores that keep my customers engaged with my store and the products I carry?

The reality is there is nothing that can be done with NFC that can not be done by an app and a connection to the Internet.

Changing the in-store shopping experience in a way that address the challenges retailers are having is not something NFC solves. I believe in mobile payments and I believe in machine to machine communication. I am just not sure NFC is the way forward when their may be better solutions readily available. NFC may have a role in that environment but it is not in the foreseeable future.

Observations and Opinions About Apple Retail

As Tim pointed out earlier in the week, Apple competitors have many things to be worried about. Strategically, however, Apple’s retail presence would be one of the biggest things keeping me up at night if I was competing with Apple.

Unlike most companies, Apple sells directly to the end customer who will be using their products. Apple has and owns a clear and distinct relationship with their customers. Many other companies sell to retailers, or the channel, and therefore have a more hands off relationship with their customers. In fact, for many non Apple customers, if a relationship exists it is with a retailer and it is weak at best.

Looking forward to the next decade, and perhaps longer, Apple’s retail strategy and presence will be one of the driving forces helping set them apart from the competition and engaging in an ongoing relationship with their loyal customers.

Steady, Healthy Growth

Earlier this week Apple inevitably became the most valuable company in history. I firmly believe that their retail strategy played a key role in making this happen. I also firmly believe that their retail strategy will continue to play a key role in continuing their value growth.

To get a better picture of what is happening with Apple retail I made a chart looking at retail store visitors per quarter going back to 2009. On top of the retail visits data, I layered on key milestones of product sales for specific quarters. I also added at the bottom how many stores were open at key points in the growth cycle.

As you look at the above slide, the following observations stand out. It is obvious that Apple is on a steady growth trend. Apple’s growing retail store presence globally, as well as their growing number of visitors per quarter, remains on a steady upward trend along with nearly every other part of their business.

Notice also that with each growth trend, a new baseline was established. With each growth cycle a new normal was established with the exception of the last holiday quarter. The same is true with key product sales like Macs, iPads, and iPhones. They may dip slightly but not below past year-over-year growth. My chart shows that this is true since 2009 and my guess it goes back even farther.

Therefore, there is no reason to assume Apple’s steady growth trend will not continue going forward. In fact, Apple’s growth is following closely the growth of key segments of the market. Year after year as the total addressable market for smartphones and tablets grows. As it does so do all areas of Apple’s business. Interestingly Apple’s Mac business is also growing even as the market for traditional PCs stays relatively flat. I believe Apple retail has something to do with that. Since key markets still have a massive amount of headroom (particularly in China) to grow we can be assured that Apple’s ability to capture share of that growth is more than likely.

The key in this scenario in my opinion is that consumers have a premium shopping experience with Apple retail. Apple’s latest quarterly retail revenue came in at $4.1 billion which is admirable in itself but Apple still does more sales from the channel than they do from their own retail presence. But these retail outlets exist for more than just driving sales.

The Best Place to Experience Apple Products

The nearly 400 Apple retail establishments exist to support at a fundamental level that I highlighted at the beginning of this column, which is to manage and actively engage an ongoing relationship with their customers. Part of that relationship is the freedom to discover. This is why Apple stores are constantly packed. Consumers are going in and looking at products and experiencing new ones. Apple has intentionally designed their stores to maximize and showcase the best experiences with all their products. This is something that is void in all other retail establishments where electronics are sold. These stores don’t just carry Apple products but also a highly selective and curated selection of third party products that help maximize the value of Apple’s ecosystem.

Other parts of the relationship that are key to Apple retail is training through free workshops and support through the Genius bar. I am continually shocked at how many people I see taking the free workshops and learning how best to use the new Apple products they bought. Every time I go into Apple retail stores their training centers are packed. Consumers we interviewed who took the time to get trained on their products overwhelmingly were glad they did it and felt empowered to use their products to their full potential. You are hard pressed to find anything remotely similar with other personal computing platforms.

Lastly, I firmly believe that Apple retail plays one last role holistically with consumers. They create loyalty. Apple has had no problem growing a large loyal base of customers but the trick is to attract new customers and keep them loyal. The data continues to show that Apple is continuing to bring upwards of 50% new customers to Apple products within key product segments. Keeping new customers loyal is key. Apple doesn’t struggle with a tremendous amount of churn and Apple’s retail will continue to play a role in that reality. There are many fundamentals on why Apple’s platform establishes loyalty but retail remains a key part of this strategy for many of the reasons I outlined above.

Apple retail, in my opinion, is one component of the many fundamentals to their strategic and competitive advantage. I continue to keep a watchful eye on all information and quarterly reports related to Apple’s retail because the health of their retail will tell us a lot about their overall health and growth opportunities as a company going forward.

And keep in mind, Apple has barely scratched the surface in China.

The New Mac Ads: If Tech Companies Were Cruise Lines

There has been a real kerfuffle caused by the new Mac Ads.

Some people dislike them. Others hate, hate, hate them.

On the other hand, some people like them…or, at least, they tolerate them.

MAC OWNERS AND MAC HATERS ARE NOT THE TARGET AUDIENCE

I agree with those, those and those who point out that these ads are not addressed to current Mac owners. They’re addressed to POTENTIAL Mac owners.

And the message being sent is so simple that it’s simply being misunderstood.

THE RETAIL STORE’S REASON FOR BEING

Here is Ron Johnson, former head of Apple’s Retail Stores, On Lessons Learned From Apple About Gaining An Edge As A Retail Brand:

“For example,” Johnson explained, “Apple has always offered the most easy out-of-the-box user experience, but we noticed there was a gap between buying and using. People were intimidated by even the easiest product set-up. So we said, if we can set up a product for them in the ten minutes before they left the store and they started using it and falling in love with it, it would be transformational. It was an insight that made the Apple store relevant.”

“(T)here was a gap between buying and using. People were intimidated…if we can set up a product for them…it would be transformational.”

Words for every business to live by. Words that Apple DOES live by.

IF TECH COMPANIES WERE CRUISE LINES

If tech companies ran Cruise Lines, most would invite you to ride on their world class cruise liners, help you pack your bags, give you a free limo ride to the docks, provide you with a lovely and delightful cruise…

…and then make you row ashore when you arrived at your destination.

Apple seems to get it. Instead of giving you a dinghy, a paddle and a hale and hearty farewell, they build a bridge between their products and their customer’s destinations. And as you’re crossing that bridge, Apple has their “geniuses” at the ready – there to encourage you, lend a helping hand, and cheer you on.

And that’s a good thing. A very good thing indeed.

Why We Need More Specialty Tech Retail

Big box tech retail had its time but for certain types of technology I am convinced there is a better way to sell. I am convinced this is the case because big box retail simply offers too much choice. The real opportunity ahead is to provide better curation of that choice.

I am an avid and highly competitive tennis player. When I buy tennis equipment I buy the good stuff. More often than not the equipment I need is not found in a big box sports retailer. Rather it is found in specialty stores where the store owner is highly curating what products are carried in the store and more importantly highly knowledgable of all the goods. This is just one of example of many advantages of more specialty retail outlets and in every case it is generally the same–better products and better service.

From a technology standpoint I want to look at a couple examples.

Home Audio and Visual

Magnolia Hi-Fi was a purely specialty show room and retail outlet for high quality home AV products. You could go to Magnolia and experience the best in home CE for both the mid and high end. Magnolia never carried the cheapest home CE products but they carried the best in the categories they chose.

During the time of the CE industries transition from analog broadcast to digital broadcast and HDTV, these stores saw quite a bit of foot traffic and drove sales. There were several reasons for this.

The first was that people were hungry to learn about HDTV and all the different nuances of HDTV’s at the time. Magnolia carried a relatively limited line of HDTV’s in their outlets so it made the learning process a bit easier to take in but they also staffed very intelligent staff who clearly explained the products, their benefits, and the technology.

During the same time if you went into a Wal-Mart or Best Buy, you were confronted with too many options and SKU variables, too many screens plastered right next to each other, and staff that had a general knowledge of the products at best but couldn’t explain specifics. All of that together left consumers with too much information to process and often leaving the store less confident about buying a new TV than before.

What Magnolia did for the market while it was still being born was key. They curated choice and helped consumers feel confident and knowledgeable about their purchase. This is simply something big box retail can not do.

What About Computers

Apple, I believe, is setting the example of how computers may be sold in the future. This is why I believe Microsoft is getting serious about putting retail stores in many of the same areas as Apple stores. My observation of this move is that retail stores for computing may be more about ecosystems than anything else going forward. Let me explain that.

Apple is vertically integrated and will sell hardware and software all for their proprietary ecosystem. Microsoft’s ecosystem is not proprietary since they don’t make computers. Because of that they need partners like Acer, Dell, HP, Lenovo, etc., who may not open their own stores all over the world. However, Microsoft may and sell all those partners hardware through their stores, which all cater to the Microsoft ecosystem. In a Microsoft store the singular point is the Microsoft ecosystem rather than any one vendor. The difference in Microsoft’s licensable platform vs Apple’s vertical integration is the fundamental point that makes these different channel strategies a reality.

The benefit of this model is that you know where to go depending on whose ecosystem you have invested in. If I am an Apple customer, I can go to an Apple store and find many products, curated on my behalf, to meet my needs when it comes to the Apple ecosystem. Microsoft’s channel strategy will be the same, although it will carry competing brands, the point remains that they are all related to the Microsoft ecosystem.

You can argue that a big box retailer can accomplish this with a store within a store mentality. But, I would disagree, on the premise of sheer floor space. A retailer like Best Buy views inventory in terms of how much they can put on shelves since they have space to fill. A smaller retailer has very little space and must be highly selective due to their lack of space. The result is more curation rather than less.

I have long used Barry Schwartz’s book The Paradox of Choice as a reference for this thinking. The primary point remains in consumer psychology that too much choice is overwhelming. Many of the points of this book validate the fundamental reasons why Magnolia Hi-Fi and Apple stores are successful. Consumers want choice but rather than throw every possible choice under the sun at them, it is better to give them choice of a select list of products which are curated by the retailer. This is again a strategy which can only be employed by smaller retailers.

To go forward in this model retailers will need to accept the “if I don’t have it someone else does” mentality. Because a specialty retailer will have to be selective, they simply can’t carry anything. This strategy has its benefits which I pointed out above and will work for many things but it also has its negatives. The primary negative being what if no store has what I want? This may be where online comes into play.

If your specialty retailers don’t have the precise product mix then perhaps online will fill the void. To use my tennis example, I prefer a very specific type of replaceable over grip. My preference in this matter is different than the mainstream so not many specialty stores carry it. So I order in online in bulk, wait a few days, but have my needs satisfied.

I am not sure if big box retailers have much of a future. I think they have their place for certain types of goods, but I have my doubts when it comes to computing goods. I, for one, think the current big box retailing experience is pretty poor and for many of the goods I would buy in a Best Buy, I have moved to purchase online.

Simply put my experience is far more superior in specialty retail over big box retail when it comes to the things I care most about. It is this fundamental point that leads me to believe that computers (i.e desktops, notebooks, smartphones, tablets) are better sold in specialty locations rather than a try-to-please-everyone-and-end-up-pleasing-no-one-big-box-retailer.

Best Buy: With Lots of Unbiased Advice

Best Buy has been running a commercial for the past few weeks where they are positioning themselves as THE place to buy a mobile phone. The commercial was very well done.

The commercial included many who invented recognizable aspects of the mobile phone experience. People like Philippe Kahn who created the camera phone. Or Ray Kurzweil touting speech and voice technologies he created. Each person goes on to say what they created in relation to the mobile phone. Then it ends with some Best Buy blue shirts saying the following:

We created a better way to buy a smart phone. Any phone, any carrier, and all of their plans, with lots of unbiased advice.

It is the last few words that I find the most interesting–with lots of unbiased advice. This insinuates that cell phone retailers should be accused of selling phones with biased advice. Perhaps not just bias advice but sales kickbacks from handset vendors as well incentivizing sales people in carrier stores to push one device over another. Not every vendor does this but it does happen. It can lead to overly zealous sales folks pushing devices on consumers they don’t actually want. I have actually witnessed this in action.

Last summer I was in a certain carriers store activating an iPad for their data network. I overheard a sales conversation between a woman in the store and a sales rep. She had mentioned several times that she was interested in the iPhone. During the process of the conversation the sales person talked her out of the iPhone to go with another device. I listened to her explain what her main uses were and they were fairly simple. Talk, text, email, web, and the device she was sold was fully capable. The only observation I made was that she did not seem overly technical. I was leaving the store at the same time as she was and I gave her my business card and asked if she wouldn’t mind emailing me in 30 days if she hadn’t exchanged the device. She emailed me a week later saying she exchanged it for the iPhone.

This is what I am referring to when I speak of the complexities and challenges of selling devices as retail. This is why I expect that over the next several, or more, years that we will see more companies duplicate Apple’s retail strategy and start opening more of their own direct to consumer outlets. Tim articulates in his column today that he expects Amazon, an online only retailer, to start employing their own retail strategy–which would truly signal this fundamental shift.

All of this just goes to demonstrate how the carrier sales channel is fundamentally broken. Best Buy is looking to solve this problem by carrying every device on every network. To some degree I almost wonder if Best Buy’s approach won’t lead to more challenges for consumers as there are faced with an overload of information and options. This is known as the consumer paradox of choice, which I have written about before.

Best Buy’s approach, believe it or not, will make handset vendors lives even more difficult. At least when sold through the carriers channel, these OEMs compete with a limited number of devices. Carriers don’t generally pick up every device an OEM makes but rather picks certain ones to fill gaps in their lineup. Competing in the sea of sameness which is the Android landscape, and will someday be the Windows phone landscape as well, will be even more difficult in an environment where the sea of sameness is multiplied. This is exactly what will happen in Best Buy as they sell every device, from every network.

And lastly is it even possible to be a sales person in retail and not have bias? We will see how this turns out as hopefully our friends at NPD will be able to track specifically what happens with sales of mobile phones and tablets at Best Buy. I, for the time being, will remain skeptical and convinced that the OEMs are better with their own retail presence. I outline that logic in this column by pointing out how similar the personal electronics market is to the automobile market. I remain convinced that the way we buy products is going to be drastically different in the not too distant future.

If you haven’t seen the commercial here it is:

Why Amazon Will Create Brick and Mortar Retail Stores

Over the years, in my various discussions with Steve Jobs about Apple and their products, there was one theme that always came out when we discussed any of his product designs; they had to be easy to use. In fact, he was the consummate customer of Apple products. If he deemed them not “easy-to-use” then it was back to the drawing boards until they were.

But while this was at the heart of his designs, he also knew that easy to use was actually a relative term and that in the end, there are a lot of variables around the technology people use that determined if they were easy for “them” to use or not. So when Apple was creating the Apple stores, they made sure that they did not just create a place where people can come and buy an Apple product. Indeed, an Apple store, with its extremely knowledgeable sales staff and their genius bars are just as critical to the success of Apple’s stores.

What Jobs and team fundamentally understood is that for those who use technology every day in the office, their ability to use a Mac and Apple’s products are intuitive enough for them to learn and use out of the box. But for the millions of people who do not use technology as part of their work or school, even easy to use products can be intimidating and some will need hand holding from time to time. Apple also understood that as people begin to integrate them into their daily lifestyles and use them as the center of their digital universe, the variables of how to make the technology work for them would only increase. With that in mind, Jobs and team knew that they needed to not only create a product but also had to provide the software and services, in an integrated way, if they were going to grow the company and become extremely profitable.

This formula is not new. In fact, if you look at the history of mainframes, mini-computers and even PCs, they all followed a similar evolutionary path. First comes the hardware, then the industry backs a major OS for these systems, which then makes it possible for the software world to create the programs that make the hardware indispensable. But over time, the profit is taken out of the hardware and the real money shifts to software and services. This is especially being played out now with the PC crowd. The profits are gone in hardware and only the software guys (i.e. Microsoft) are making any money in the PC game. That is why HP has spent billions on EDS and their service business because all of the real profits for the hardware guys have shifted here.

Apple is insulated from some of these issues since they control the hardware, software, and services. But while most people think of their services as iTunes and their related apps and cloud services, they miss the fact that their Apple stores are also part of their services offering. A good way to think of this is that the Apple store is their EDS. They are there to interact with the customer, to help them integrate Apple’s various products into their life or work-styles and if there is a problem, solve it for them on the spot. (Sounds a lot like EDS and the big service providers does it not?)

This is why Microsoft has suddenly entered the retail business. While selling their products is part of their retail offering, these stores are their “EDS” that meets the needs of their consumer’s customers. Like Apple, these stores are there to help them “integrate” Microsoft products into digital work and lifestyles and if problems arise in doing this, be the place to come to help them deal with it. While the Microsoft stores need to break even, they are not necessarily profit centers. Instead, think of them as consumer service centers that keep the customers happy and making sure they keep buying products that use Microsoft’s software from all of their partners.

Google opening a store in Ireland is a nod in this same direction. And now we have rumors that Amazon is looking at opening their first store in Seattle. At first, you might think that an Amazon store will be going after a Costco given their breadth of products. But Amazon is smarter than this. They have gone to school on Apple and like Microsoft, understand that a retail storefront is actually a vehicle for servicing their customers who buy their dedicated technology products. At the center will be their Kindle line of course, and the store will be there to answer questions and help people get the most out of their Kindle eBooks and tablets. But it would not surprise me if this signals they might also do an Amazon branded smart phone and over time consider other Amazon branded products that these stores can sell and support.

None of these moves to copy Apple with storefronts should be too surprising given Apple’s success in this area. But while Apple Stores do sell Apple products and are used to drive people into the stores to show off their wares, keep in mind that the role it plays in providing service and support is equally important to its success equation. And for Microsoft, Google and Amazon, and any other vendors who move towards vertically integrated products, if they really want to keep their customers happy and coming back for their branded products, they better be ready to provide the service and support that goes along with helping them integrate these products into their digital lifestyle. If not, that loyalty will shift to Apple, who has defined the consumer version of EDS and is well positioned to continue to take customers away from the competition.

Tablet Price Promotions to Boost Demand

Staples is the latest retailer in the tablet market to offer a price promotion on tablets. The company is offering a coupon for $100 off tablet purchases (excluding the HP TouchPad) through July 30.

The coupon is the latest price move by a tablet player to spur demand. Tablet brands have recently been lowering prices to boost demand as the US market enters the high volume back-to-school season. Motorola dropped $100 off its Xoom, from $599 to $499, earlier this month. Acer cut $100 off its Iconia A500, from $499 to $399, this past week in Best Buy circulars. Toshiba launched its Thrive at $429 for the 8GB version. Apple’s iPad starts at $499 and had initially set the bar for what tablet pricing should be. However, brands are having trouble reaching levels similar to the iPad’s success with their devices.

Brands and retailers have been gradually catering to the emerging device category through differentiated floor space, dedicated business units, and specific sales strategies. Staples is the first major retailer to offer a price promotion on tablets. Price cuts tend to be viewed as a last resort. Still, many are aiming for significant adoption, viewing iPad sales as the basis for their expectations. Apple reported sales of 9.2 million units in Q2, up over 180% Y/Y. Other brands are nowhere near experiencing iPad-like success.

These price moves may boost demand in the short term, although I doubt it will be to the level they’re expecting, but long term, it devalues the category and threatens the margin levels that they are hoping to achieve. This is especially risky at the start of a category because it sets the consumer’s expectation of what a product should cost. It also makes it difficult to raise that price expectation in the future. We saw that with mini-notes (or netbooks) and the impact on notebook average sales prices.

To a certain extent, the brands and retailers have their hands tied because Apple is having so much success with their tablet. There is an impression that if you can’t reach that level, then you’re messing it up. The reality is: the brands and retailers competing with Apple are playing from behind, and in their desperation, they might be digging themselves into a deeper hole. One could argue that the brands and retailers are responding to what the market is willing to pay for their tablets. That might be easier to accept if the devices in the market were fully mature and not experiencing glitches; however, it is giving the impression that these products aren’t completely finished.

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