Microsoft Corporation (NASDAQ:MSFT) announced the addition of a store-inside-a-store model on June 13, partnering with Best Buy Co., Inc. (NYSE:BBY) to sell its products.
The move is similar to the Apple Inc. (NASDAQ:AAPL) retail stores that we now see throughout the nation, and also to Microsoft’s own stores. A major difference is that it allows Microsoft Corporation (NASDAQ:MSFT) to expand its exposure to customers without the large price tag and risk associated with opening new outlets. The move will definitely help Microsoft’s exposure, and it could also increase the company’s profits. Best Buy Co., Inc. (NYSE:BBY) previously carried computers powered by Microsoft’s Windows operating systems, and this move will tie the companies more closely together.
A popularity contest
As Microsoft Corporation (NASDAQ:MSFT) continues to develop its brand, the company has been making a big push since 2011 with the release of its Windows 8 operating system and the Surface tablet. The company has also re-branded its corporate logos and created websites with metro-style designs. This effort has definitely been spawned by the company’s desire to not become a computer company of the past. After all, Apple established itself with a sleek and simple look. Predating Microsoft’s makeover, Apple Inc. (NASDAQ:AAPL) broadcast frequent commercials featuring actor Justin Long representing an Apple Mac and a no-name, much less attractive actor representing the PCs that are most often powered by Microsoft Corporation (NASDAQ:MSFT) Windows. The commercials showed how outdated the PC is compared to Apple, essentially making fun of the PC and branding it as uncool.
Will the move work?
Both Best Buy Co., Inc. (NYSE:BBY) and Microsoft likely stand to benefit from the deal. Best Buy and other big-box stores have seen much of their business taken away by online options that are often cheaper. Many customers come into the store to look at the products before going home and making the purchases online. This has taken a chunk out of Best Buy Co., Inc. (NYSE:BBY)’s profitability. In fact, revenue at Best Buy Co., Inc. (NYSE:BBY) fell to $45 billion in 2012, down from nearly $51 billion in the previous year. That didn’t beat the company’s operating expenses and resulted in a net loss of $417 million. In 2011, the company’s net profits had fallen to $334 million, down from $1.5 billion in the previous year.
From Best Buy Co., Inc. (NYSE:BBY)’s perspective, Microsoft Corporation (NASDAQ:MSFT)’s showroom setting is a move to curb the downward trend the company has experienced since 2011. And in Microsoft’s eyes, it is a way to better connect with potential customers and show them exactly what the company is capable of. Microsoft has managed to increase its revenue in each of the last four years. In fact, the company has increased its revenue by about 25% in that time. Apple Inc. (NASDAQ:AAPL), however, increased its revenue by about 360%, and its first quarter revenue for this year, which was reported at over $20 billion, shows no signs of slowing down. The company is on pace to increase revenue again this year over last. Microsoft Corporation (NASDAQ:MSFT) has a chance to take away some market share by building its exposure through the new stores, however.
Microsoft can make a dent in Mac sales, which accounted for just over 11% of Apple’s sales in the first quarter of this year. The Apple iPad, however, isn’t faced with much danger from the Microsoft Surface as it barely registers in the market. The firm is behind Apple, Amazon and Samsung in tablet sales. And Apple can’t really be touched by Microsoft in the iPhone category, which accomplishes nearly 55% of Apples total revenue. However, Apple does face a decreasing market share due to the Samsung Galaxy S4, which sold around 10 million units in May and beat Apple’s iPhone sales for the month.
The move is a win-win
Both Best Buy Co., Inc. (NYSE:BBY) and Microsoft Corporation (NASDAQ:MSFT) will see increased exposure through the deal, something that could be bad news for Apple. As long as Windows can improve the usability of Windows 8 and better connect with customers by working directly with users, increased profits could be ahead. The store-inside-a-store is slated to open this month, with the full rollout to 500 stores in the U.S. and 100 in Canada expected to be completed by September.
The article Microsoft Partners with Best Buy; What Does It Mean for Investors? originally appeared on Fool.com and is written by Phillip Woolgar.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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