Why Retail Stores Don't Guarantee Tech Success

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

Google (NASDAQ: GOOG) is rumored to be considering opening its own retail stores. While such stores have been vital to Apple (NASDAQ: AAPL), even the Google name can't guarantee success in this arena. The middling performance of Microsoft's (NASDAQ: MSFT) stores might prove a more likely outcome.

The Apple Store

A big part of Apple's success can be traced back to its sleek stores, which offer free customer service at their Genius Bars. Very early on in the company's resurgence, it realized that it was a device retailer. This is only logical, since it controls just about every aspect of its products, from operating systems to hardware. Apple has clearly done an amazing job with the vast majority of its products, and its stores gave it a powerful showcase.

Apple stores are now considered among the elite “destination” shops that draw customers to malls and neighborhoods. This allows Apple to push for rent concessions, and gives the company a lot more clout in choosing locations for new stores. Clearly, everyone would love to have a retail store base with those attributes.

Microsoft

Though Microsoft has tried to emulate Apple, its stores just don't have the same cachet. While Microsoft does have its own products to sell, such as the Xbox, its business model is far more open than that of Apple. Microsoft makes a massive sum from providing the brains behind other companies' devices. 

The big problem is that very few people get excited about Microsoft products. Sure, the Xbox has dedicated fans, but it's probably the only product the company sells under its own name that can make that claim. So, a Microsoft store simply doesn't have much to draw customers in.

Google

Google's business model has historically been more similar to Microsoft's than Apple's. Indeed, Google has built its business by providing others the ability to build off of its platforms. This includes the company's search and advertising tools, as well as its mobile operating system. The big line item for Google has always been advertising.

In fact, the company's 2012 purchase of Motorola sparked notable concerns that the company might want to venture into hardware. While Google suggested the purchase was intended to cement intellectual property rights, many thought it was enviously eying Apple's business model. Since Google now makes phones, and more recently computer devices, aping Apple may indeed have been Google's true motive, particularly now that the store rumor is floating around.

Mixed Models

But retail stores would create a complication for the company. Google has so many companies using its products and services because it doesn't directly compete with them. That makes a partnership with Google relatively safe. Unveiling more Google-branded hardware products could change that.

Opening stores will make that dilemma even more of an issue, even if the company showcases competitors' products along with its own. Indeed, which brand is a Google-paid salesperson going to push hardest?

A Longer Term Weakness

Opening stores could even provide an opening for Microsoft. The two dominant mobile operating systems belong to Apple and Google. That duopoly has worked so far, largely because Google, which has a larger market share, hasn't been competing on product.

Now that this may be changing, more companies might partner with Microsoft to ensure that they have a solid third option to play off Google's Android. While that won't help Microsoft's stores, it would help it elsewhere, which, in the end, weakens Google in one of its core businesses.

A Failure Won't Hurt

The good thing for Google shareholders is that the company has plenty of firepower to make mistakes and still survive to tell the war stories. So even an abject failure won't be too big a deal. That said, it could give competitors a foothold that they otherwise wouldn't have had and, perhaps, tarnish the company's hardware products.


Reuben Gregg Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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