When It Comes to Retail, Microsoft Barely Scratches Surface

Wall Street Journal – Microsoft MSFT -1.33% may have developed its first nifty mobile device. But trying to sell and service it could prove a challenge.

Expected to ship in the fourth quarter, the new Surface tablet could appeal to business users in particular. Unlike Apple’s AAPL -2.09% iPad it will run popular Microsoft Office apps such as Word and Excel.

It will also have an innovative keyboard cover that should make typing easier without the added weight of typical accessory keyboards designed for tablets.

Right now, the iPad dominates tablets, with 68% global market share in the second quarter, according to Strategy Analytics. As it continues to cut into sales of PCs, and consequently of Windows and Office, it is crucial for Microsoft to hit back.

One trouble for Microsoft, though, could be distribution. The Surface is a new device, running the new Windows 8 operating system, that will be offered in two distinct models that will run different apps. Given all that, potential customers might want to play around with it before buying.

The trouble is, there won’t be very many places to do so. Today, Microsoft has under 30 retail stores in the U.S. Internationally it has just one, in Toronto.

Apple, meanwhile, had 372 stores in 12 countries as of June. IPads are also sold at Best Buy, BBY -2.16% Wal-Mart WMT -0.24% and even wireless-carrier stores. Microsoft doesn’t yet have distribution relationships with other retailers. It plans 35 additional U.S. “pop-up stores” for the holidays. Even so, major U.S. cities like Chicago, Philadelphia and Phoenix won’t have one. New York and San Francisco will have just one temporary store each. There will be none overseas.

Microsoft will also sell the Surface online, but again, many customers may want to try it out before buying.

Granted, device manufacturers including Dell and Hewlett-Packard HPQ -0.96% have huge distribution capability and over time will help push Microsoft’s new touch-friendly operating system to every corner of the world. Yet devices they have previewed thus far haven’t been as exciting as the Surface. Nor do any of these companies have meaningful market share in tablets today.

Apple’s huge retail footprint also provides customers with plenty of locations where they can get service for their devices. Contrast that with Microsoft. The company offers service for devices like the Xbox console mostly via phone and the web. When that doesn’t work, users have to ship their device to be repaired, and they may not get it back for over two weeks.

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Small-business customers in particular may want significant support that could prove tough for Microsoft to provide.

The good news for Microsoft is that history suggests quality products create their own sales. The iPhone started with limited distribution, offered in only one country by one wireless carrier—AT&T T -0.76% .

Microsoft has demonstrated it is capable of creating a compelling hardware device, says Bernstein Research analyst Toni Sacconaghi. Note the tens of millions of Xboxes sold.

That said, the rapid failure of the Zune music player and Kin smartphone suggest Microsoft will have to work hard to win users for its new device. It has no army of faithful buyers to camp out the night before launch or many places for them to camp out.

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