Microsoft to Sell Its Internet Services in Radio Shack Stores
Microsoft Corp. unveiled a plan Thursday to sell Internet connections to the masses, not through the traditional means of mailing out millions of disks or bundling access with a new computer, but by selling directly to consumers through Tandy Corp.’s 7,000 Radio Shack stores.
It also marks the most aggressive example in the broadening trend of electronics companies’ striking alliances with retail chains to set up their own stores-within-stores to market their products.
Beginning late next year, Microsoft will set up boutiques inside Radio Shack stores to sell its Internet services--from regular modem connection to high-speed DSL--and a range of Internet-related products, such as WebTV, Windows CE hand-held computing devices and a soon-to-be-announced Internet terminal.
By using Radio Shack’s 30,000 salespeople, Microsoft hopes to take a more direct route to sell its MSN service to consumers who have yet to go online.
A key component of the plan is a Radio Shack service that specializes in installing equipment and Internet access, giving consumers the ability to connect without the usual headaches of configuring their systems themselves.
Microsoft Chairman Bill Gates said the partnership with Radio Shack is an important step in fulfilling Microsoft’s vision of the weaving of the Internet into parts of everyday life.
“Radio Shack has a leadership position in reaching out to the American home,” Gates said in a conference call Thursday announcing the Radio Shack partnership. “We reached out to Radio Shack to make this ‘everyday Web’ a reality.”
The news helped drive up Tandy’s stock $4.19 to close at $69.38 on the New York Stock Exchange. Microsoft’s shares closed up $2.50 at $89.63 on Nasdaq.
The Microsoft deal also pushed up the stock of Circuit City Group $7.25 to $45.50, and Best Buy Co. $5.88 to $54.38 amid speculation that America Online and other Internet service providers would also begin selling Internet services through retail chains. America Online stock fell $3.75 to $142.25.
“There’s no doubt about it,” said Martin Goslar, principal analyst for Organizational Research and Technology Services, an Internet analysis firm based in Arizona. “The idea is click-and-mortar. America Online is the big gorilla here, and they are going to find someone to play with.”
Goslar said the idea of Microsoft creating a kind of boutique inside Radio Shack stores also underscored the popularity of the “store within a store” idea.
Compaq and Sprint already have such boutiques within Radio Shack. Apple Computer also has a similar arrangement with CompUSA, in which it places a special Apple retail store inside each location.
Michael Graham, an Internet analyst for Robertson Stephens in San Francisco, said Microsoft’s plan is an interesting twist on selling Internet access that in many ways echoes the successful strategy of selling cellular phones and services through retail stores. “It makes sense for Microsoft to be ahead of the trend,” he said.
The five-year agreement brings a new level of exposure for Microsoft’s Internet service, which has languished in fourth place, well behind the leader, America Online.
Microsoft beat out America Online to sell Internet services through Radio Shack stores, Tandy said.
Under the deal, Microsoft will pay to outfit Radio Shack’s stores, including some form of high-speed Internet access. Radio Shack will get a cut of the revenue from people signing up for Microsoft’s services.
Another part of the deal calls for Microsoft to invest $100 million in Radio Shack’s new e-commerce site, Radioshack.com. In return, the Web site will be advertised on the Microsoft Network and become a more integrated part of the network.
