Of sheep and shepherds: Microsoft Retail Strategy

Microsoft held a webcast yesterday to explain their retail strategy. It was an excellent webcast with a quick background info followed by an extensive Q&A. I rated it as excellent, actually almost unbelievably good, because they were about as frank and direct as you can possibly be. Here is what I heard, in summary (not a quote):

Retail didn’t ask for our permission to go direct to the consumer, let’s make the best out of it. The reason why we (Microsoft) think you’ll continue to be relevant is in the fact that retail has traditionally been about volume and they aren’t good at services and don’t have the expertise to provide support of day-to-day.

Now before I share my opinion with you I urge you to watch the webcast, when the recording is placed online and announced on mssmallbizblog.com.

The Microsoft Premise

According to the presentation, we all win with the involvement of retail in the distribution of the software. Retailers have massive square footage and can raise the business interest in the new platforms and technologies. The logic follows that more exposure is good for Microsoft, good for retailer and by translation great for SBSC because more stuff sold equals more stuff to support. Again, not a direct quote just an impression of their message.

Vlad’s Opinion: In terms of exposure, yes. But with retailers moving up the chain from the FPP (Full Packaged Product, ie: retail box) into volume licensing the core of SMB VARs sales potential is diminished. Furthermore, VAR does not retain the control of the client, retailer does; What’s in control? Service pricing. Bargaining. Service assignment. Direct sales. Basically by losing the control of the sales process you lose the control of the client and become just a contractor. For example, instead of providing a service as you do today you will get an order bid from Best Buy giving $50 for a motherboard replacement – Take it or leave it.

Why SBSC wins over Retail

According to the presentation, SBSC’s will continue to dominate the SMB arena because retailers are not good at day-to-day management of technology. They are good at selling the product. They will need to rely on the SBSC to provide exceptional high-end support and business guidance for how the technology will be used. Retailer does not have the ability to train the workforce to provide SBSC-like service because at that point their profits go down.

Vlad’s Opinion: Simply not true today. Yes, five years ago retailers were focused on sales and moving the product. Today, retailers are interested in service, support, extended warranty, etc. Some, such as Best Buy for Business, have trained MCP, MCSE professionals on staff and provide support for setup, ongoing maintenance, troubleshooting, server configuration, network design. Those have also been quoted as “out to destroy” the VAR.

The details are in the mud

According to the presentation, Microsoft is working very hard to connect a retailer with the SBSC. While they were quite vague on the details, as is to be expected for a partnership that has not been announced yet, there is a plan to help retailer and SBSC form a successful partnership through referrals. There is also an idea that the small business prefers to buy local through a retailer and that the SBSC can order from the retailer and have the equipment drop-shipped to the customer.

Vlad’s Opinion: You have to admire Microsoft for trying. Thanks, but no thanks. We’re not about to help out an already aggressive and antagonistic local competitor get established in the local market as a service firm.  

The big disappointment

Disappointment and amazement all at once – the response during Q&A was simply amazing. Microsoft had just outlined the death of the VAR and outright replacement of one of the core functions that powers the SBSC – and the outrage that followed? There was no outrage. Partners were slightly suspicious judging by the questions but most of the questions were about how to partner with retailers.

Basically, sheep are going to partner with the wolf.

But you don’t have to take it from me…

Here are some of the comments from the community regarding the Microsoft retail strategy. Their full commentary is available in a public Yahoo SmallBizIT group.

Amy Babinchak writes:

Did no one find offense in being compared to a carpet installer? That statement alone sums up the whole program. You, SBSC, are as valuable to us as Counter Top installers are to Home Depot. They assume that all SBSC are single person struggling firms looking to make a quick buck installing PC’s for $50. I’m sure that they’ll find plenty of them but are the ranks of SBSC that lowly?

Henry Craven writes:

I think MS is showing it’s true colours here…

It now answers the question of WHY MS started the SBSCs and pushed to get the Core of 3000+

To sell them to the retailers. – This is their pay back.
“Here, – you sell our Licensing and server products – not just our desktop consumer software and we’ll provide you with a seed core of installers and support people.”.

They learned from the success of SBS that once the product had reached a good rep and market penetration via support from the small ITs they could then sell it to the OEMs as a DIY that the “community” would support. It’s just a variation on that..

Here in Aus they were pushing for a doubling of the SBSCs ( which has been pulled back a bit ) and will do another round of Free Exams. With the added SharePoint as a qualifier I daresay that if they don’t get the numbers, they will actually -lower- the bar rather than raise to enhance the credibility of the cert and settle for fewer but more qualified members.

Microsoft say differently, but I strongly suspect that the “Evangelists”
just drink the Kool-Aid and don’t look to the Bigger strategy and what is driving it.

So are the SBSCs just fodder to a marketing plan … I’d stake my soul on it.

—
H.

Interestingly enough MS asked the MVPs to attend at a range of retail stores to promote Vista at the launch – under the guise of Community Support.
I’m highly disappointed at those who fell for it. – it had nothing to do with Community Support just free Booth Dollies to add credibility for the Retailers. Smart move on Microsoft’s part and again, an example of MS delivering to the Retailers so that they will sell more MS product.

Matthew Weaver writes:

I agree.  My first thought was “well, new business can’t be bad” – but to those of us that are not struggling (I’d wager the majority here) – what a slap in the face.  I can’t imagine being stuck in a 3-way relationship with a vendor and client could be very profitable, the large vendor would doubtlessly have control.

Amy Luby writes:

I was pretty disappointed myself.  The pointy questions that Vlad references below were not answered.  Telling me that retailers aren’t asking Microsoft’s permission to start providing services does not answer the question which is – What is Microsoft going to do to avoid alienating its SMB Partners?  So, by not answering the question, what they are really saying is they (Microsoft) are not going to do anything to avoid alienating their SMB Partners.  The fact that there were partners on this conference call actually believing that this Retail initiative is good for your business just boggles my mind.  But, I guess we’ll just have to wait and see what really happens.  This call was nothing but spin really because Rex (was that his name?) said they were working on deals with retailers, but couldn’t share details.  So, why did we have this call?  No answers were really provided.

James D. Maher writes:

I feel that Microsoft is giving retail a “boost”, and I wish they’d instead spend that money on marketing SBSC – which I really believe would serve the clients better.  But it’s easy to see why they’re favoring the retailers (if those AMI statistics are credible).  It IS a bit annoying to be considered like a countertop installer, but I don’t expect a retailer to understand (though I wish MS would at least TRY).

Vlad, I think you pointed out in a recent blog that we aren’t really partners with MS anyway.  Today’s seminar seemed to illustrate that point.

I did spend a few minutes (constantly brushing the chip off my
shoulder) trying to imagine how I could make a realtionship with a retailer work.  I can’t really come up with anything I’m interested in pursuing.

For us, nothing is likely to change.  We’ll still recommend and sell MS, because its the best available for our clients.  We’ll still buy parts and pieces from retailers when its convenient.  We’ll still pursue our own marketing and make our own way.

But, hey, maybe if the retailers do a boatload of advertising it will raise SMB awareness.  “A rising tide . . . ” and all that.

Oscar Barriuso writes:

Anyone here familiar with the Onforce platform ?  The Big Box retailers have, and are already contracting through this platform to meet their workforce needs.  And like Amy said, the average price per ticket from CompUSA is $50.

Yes that’s right $50 per work order, Who wouldn’t jump all over a MOBO replacement for $50?

I now know why MSFT has been pushing hard to get it’s SBSC numbers up. There’s got to be someone amongst our numbers willing to whore themselves out, for the cheapest trick.

Allen StClair writes:

Sorry for being so dumb, but can somebody explain what they are upset about? Are you upset that Microsoft wants to sell its products through the retail chains? There’s got to be something more I’m missing…

I can personally say that Microsoft has provided me with far more free, useful, market research and product guidance than any other vendor.

Do you really expect Microsoft to build your customer base for you?
The whole purpose of running a business is for YOU to acquire and retain YOUR customers. You can’t expect your vendors to do it for you.

You are responsible for your actions. The technology world changes quickly. If you don’t change with it, you will go out of business.
The most important asset you have is your relationships with your customers. If your relationship with your customers is so weak that that Microsoft’s retail push is a problem for you, then you better take a look at your business practices.

Art Bigler writes:

Well, I certainly didn’t fall for it “hook, line, and sinker”.  I’m not exectly sure how to respond to what was (and was not) said during the session.  My initial response was that Microsoft was running the flag up the pole and waiting to see who would salute it.

I have feelings all over the place about this and they include many of those already stated here, both positive and negative.  I think that, given the information supplied, that there may be both good and bad aspects to this whole thing.  The fact is: the devil is in the details, and there weren’t many details presented.

I just don’t see how a big box vendor is going to be able to analyze the business needs and transform them into a viable solution.  The types of people they have on the sales floor do not, in general, include anybody with any industry specific skills.

James Barrett writes:

I saw 5 Staples ads within an hour all directed right at the Small Business. One was pretty insulting using a similar character to SNL’s Nick Burns “The Computer Guy”. The ad used a rude, sloppy, teenage Geek more interested in playing games than fixing business tech  problems appears to be what MS thinks most SBSC’s must be from what I’m hearing about this webcast. I’ve not been able to listen yet as I registered to hear the recording but so far no email from MS as to where the recording is.

The conclusion

I think the Microsoft presenter said it best: Retailers did not ask for our permission to enter..

Retailers don’t care much about VARs. VAR, as big as it is in the mind of a small company, is an insiginificant and dispersed entity carrying no significant sales or loyalty. Retailers are not out to kill the VAR, they are out to kill Dell, HP, IBM and others by providing local support, service and sales. Retailers are about sales, service brings in more sales and a more loyal customer that will buy more.

Microsoft is out to sell more software. They are using the retail channel to sell more software and sell the platform instead of just the box. Good for them.

Retail is serious. Do not buy into the notion that this is a joke, a flash in the pan, an unskilled force. Harry Breslford bragged less than two years ago about selling 1,000 copies of his SBSC training guide to Best Buy. They are serious. They need the time to train the workforce, time to get the experience, time to establish themselves.

So the conclusion is here to be written by you: Will you help retailers put you out of business?