Microsoft and Apple: Competing on the high street

Seattle: I've just visited two shiny temples to technology, brightly lit places with keen, well-informed and helpful staff, and a welcome for anyone who wanted just to play on the laptops, mobile phones or tablet computers.

Yes, one was an Apple store, but the other, just a few doors along in a shopping mall in Bellevue near Seattle, was a Microsoft store. The software giant has now opened seven of these shops in the United States, an attempt perhaps to copy Apple's very successful experiment in selling its products direct to the public in an environment designed to reinforce the brand.

The one I visited, just a few miles from Microsoft's headquarters in Redmond, seemed to have much of the recipe about right - good design, plenty of room to look at the products, and without the overcrowded shelves and apathetic salespeople you get in many big electronic retail chains.

But it did seem to be proving less of a draw to shoppers than its neighbouring Apple Store. That might be just because it has only recently opened, or it could say something about the different ways the two companies are organised to address their markets.

Apple is one of the most vertically integrated businesses you can imagine. It designs and owns all of its own products, both software and hardware, and while it does not manufacture, it exercises tight control over the suppliers in China who produce the iPads, iPhones and iMacs. And, while you can buy Apple products from outside retailers, the firm has made huge efforts to sell direct to consumers, either online or through its fast-growing chain of stores.

By contrast, Microsoft, despite its image as the overwhelming force in the software industry, has always been reliant on relationships with other firms - the computer makers who have installed its software on their machines, the phone manufacturers who've adopted its mobile operating system, and the retailers who have sold Windows 7 or Xbox consoles to consumers. And even in its new stores, Microsoft products have to jostle with other brands - from Samsung to Acer to Lenovo - creating a much less uniform experience than at the Apple stores.

These different approaches - the vertical or the horizontal - had come up in discussion with Microsoft's research and strategy guru Craig Mundie a few hours earlier. He pointed out that in the 1980s and 1990s, it was Microsoft's strategy that had proved the winner. Because Windows was released to the PC makers to install on any machine it ended up grabbing most of the market, while Apple's refusal to licence its operating system gave it complete control, but of a very small niche.

In the smartphone market, however, Apple's strategy has worked out until now - total control over the software and the handset has produced a phone for which consumers were willing to pay a premium. But 

Google's very different approach, allowing anyone to install Android on any kind of phone, is now taking the market by storm. Craig Mundie reckons that Microsoft's partnership with Nokia is a third way, giving the two firms a measure of control over both hardware and software.

Microsoft probably won't worry if crowds do not flock to its new stores - they are just a small exercise in making the brand look a bit cooler, rather than a key plank in the strategy. For Apple, though, the rise of its retail chain has mirrored the extraordinary surge in its profits over recent years, so if the crowds in the stores begin to melt away, that really will be cause for concern.

http://www.bbc.co.uk/blogs/thereporters/rorycellanjones/2011/02/microsoft_and_apple_competing.html