Distribution Woes Could Sink this New Tablet

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some doubted Steve Jobs when he envisioned Apple (NASDAQ: AAPL) retail stores throughout the country.  But once again, a Steve Jobs idea proved to be genius.

As of June, Apple boasted 372 retail stores across 12 countries.  The distribution centers allow potential customers to come in “off the street” and test out first-hand the magic of an iPad before they buy it.  Apple devices are also prevalent in major retailers like Wal-Mart and Best Buy.  And of course prospects can buy them online.

Apple’s pioneering of its incredible retail distribution system has been a strong point for the company.  Coupled with what many argue is the best tablet product, Apple has exploded to a 68% share of the market, light years ahead of tablets with second-place Android, which has 29%.

Scratching the Surface

Unlike Apple, Microsoft (NASDAQ: MSFT) does not have a powerful distribution network to push its tablets.  The new Surface tablet is earning strong reviews, but Microsoft has to ramp up its distribution efforts to gain meaningful market share – right now it has just 1% of the market.

Microsoft could tap a powerful customer base by entering the business market.  Windows is often seen as a more corporate operating system, one that is more inclined to number crunching.  Living up to its reputation, the Surface tablet can easily run Microsoft Word, Excel, and PowerPoint, staple products in the business environment. 

Moreover, the tablet “will also have an innovative keyboard cover that should make typing easier without the added weight of typical accessory keyboards designed for tablets,” The Wall Street Journal reports.  Again, business users should love this.

The problem is distribution.  Microsoft has less than 30 retail centers in the U.S., and it has one in Toronto.  When the tablet is released later this year, Microsoft plans to open 35 “pop-up stores” in major cities, but it will have only one in New York City and only one in San Francisco.  What does this mean for the tech giant?

Microsoft: if you want to generate major sales, push business development.  The Surface tablet, which runs the new Windows 8, appears to be a solid product.  However, selling the product in just a few retail stores and listing it online will not give the company the power to gain tremendous market share.  Users will want to test out the device before spending hundreds of dollars to buy one.

Potential Solutions

First, Microsoft must change its plan and distribute its tablet through major retail centers, and perhaps even through wireless carriers like AT&T or Verizon.  Microsoft is a strong brand, and I have confidence that the company can get at least some shelf space.  If nothing else, the company needs to conduct product demos in malls during the Christmas shopping season.

Next, Microsoft must pull down all barriers to buying direct from the company’s website.  This means providing all specs, which it does, and also answering all technical questions.  It includes posting numerous videos of consumers using the product.  And like clothing retailers, Microsoft must give customers the chance to zoom in and out and rotate the product, so shoppers can get a nice feel for it.  If you have not seen the promo video, I recommend doing so – it is masterfully done.  But to sell online, Microsoft needs more content.

A final thought is to distribute its operating system on tablets through Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ), reliable companies with strong brand names. 

Tablet sales from these two giants could place Windows 8 into hands across the globe.  However, there is one problem: add the market shares of Apple (68%), Android (29%), and Microsoft (1%) together, and that leaves between one and two percent left for the entire market.  Translation: Dell and H-P won’t be ramping up sales any time soon.

According to The Wall Street Journal:

Granted, device manufacturers Dell and Hewlett-Packard 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.

Distribution can make or break a company.  In the case of Apple, the company grew to a great many distribution channels – and Apple has been rewarded by snagging two-thirds of the tablet market. 

But Microsoft is a different story.  To have any chance against Apple, Microsoft must quickly ink a large number of deals to put the tablet directly in front of shoppers.  Let them see it, touch it, and play with it.  Otherwise Microsoft may face a unique problem: having a great product, but few ways to get it in the hands of customers.

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ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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