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Why Microsoft is bailing on retail

June 30, 2020, 1:26 PM UTC

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It was one of those Friday announcements that I didn’t get around to hearing about until the next morning: Microsoft, at what almost any other company would call great expense, is closing its 83 retail stores, most of which are in the United States. It’ll cost Microsoft $450 million, or 5 cents per share in terms of earnings, to shutter the snazzy outlets.

I have long been bemused and fascinated by the software company’s stores. In 2015, a day after I saw Hamilton on Broadway, I checked out the new flagship store in New York City. My takeaway: Microsoft’s shiny retail space looked an awful lot like an Apple store, but with fewer people.

Over the years I assumed Microsoft thought of its stores not so much as money makers but as marketing vehicles. It could show off its quite good Surface tablet and laptop lines and evangelize to consumers and small business owners—people who sometimes are willing to become corporate computer users—its ubiquitous Office productivity software.

Last year I bought one of those laptops myself, making repeated visits to the lavish store in downtown San Francisco. Each time I marveled at all the time the Microsoft store employees spent with me, especially in contrast to the wait-over-there curtness anyone who has shopped in an Apple store has experienced.

My observation was probably telling. Pricey outposts that aren’t commercial engines can only last so long. Microsoft has come to the same conclusion about digital transformation it is selling to its customers: It can serve them just as well online. Investors either yawned or cheered the news. “I didn’t get one phone call or email from clients,” says Brent Thill, who follows Microsoft for the investment bank and brokerage Jefferies. “Investors will be encouraged they are getting out of a low-margin business and focusing on higher-margin businesses.”

That Microsoft was willing to bite a half-a-billion-dollar bullet to rid itself of its stores speaks volumes to what money pits they were. (They closed during the pandemic.) The company “politely” declined to make executives available for an interview. Its euphemistically titled post on LinkedIn (which Microsoft also owns)—A New Day for Microsoft Store—by David Porter, the company’s top retail executive, drew more than 150 comments by mid-afternoon on Monday. Many lamented the branding opportunity Microsoft is forgoing. Kevin Turner, a former Microsoft chief operating officer, termed the news “a sad day for Microsoft consumer (sic) and Microsoft Surface as well as the Microsoft customers you served.”

Adam Lashinsky

@adamlashinsky

adam.lashinsky@fortune.com

This edition of Data Sheet was curated by Aaron Pressman.

NEWSWORTHY

Who's the fairest of them all? Athleisure retailer Lululemon announced Monday it is acquiring Mirror, the at-home fitness startup, for about $500 million. The startup, which offers live classes through a mirror-like, wall-mounted machine that retails for $1,500, had raised $72 million from investors. In rumored deals, Uber is said to be stalking food delivery startup Postmates with a possible $2.6 billion bid.

Scrub a dub dub. Hotels are still suffering during the pandemic, but apparently apartment-hopping is making a comeback. Airbnb CEO Brian Chesky says bookings have recovered, exceeding 2019 levels, and going public this year is again a possibility. "No model that we, nor any bankers we worked with, that had any recovery like this even happening in this year, let alone in the beginning of June," Chesky said on Fortune's Leadership Next podcast. "It has exceeded kind of everything we expected."

What a way to make a living. The extra $2 per hour for Amazon warehouse and delivery workers expired this month, but the company has planned some additional remuneration for them. Amazon said on Monday it will pay bonuses of $500 to $3,000 for full-time workers and $150 to $500 for part-time workers–a total of $500 million in all. In other Amazon developments, the company's web services business on Tuesday unveiled a dedicated unit focused on cloud computing in space called Aerospace and Satellite Solutions.

Cancel culture. The deadly skirmishing between India and China moved into the realm of the virtual on Monday, as the Indian government banned a slew of popular Chinese apps. ByteDance’s TikTok, Alibaba’s UC Browser, Tencent’s WeChat, and more than 50 other apps were declared “prejudicial to sovereignty and integrity of India."

Anticipation is making me wait. I must admit that I have developed a weakness for the Dunkin "Beyond Sausage" sandwich with its tasty non-meat patty. But it is Beyond Meat rival Impossible Foods that seems to be taking over. After getting its faux sausage in Starbucks and Burger King, Impossible on Monday made the product available to all restaurants in the U.S. Shares of Beyond Meat dropped 7% on the news, leaving them still up 74% for the year. Impossible has yet to go to public.

Know any brilliant young or young-ish people? Today is the last day to make nominations for Fortune's 40 under 40 list.

FOOD FOR THOUGHT

Apple's news service has attracted 125 million regular readers, but it's still controversial in some journalism circles, as it doesn't seem to have made a ton of money for media outlets. On Monday, the New York Times said it was ceasing to participate. Industry analyst Ken Doctor assesses what's going on at the paper and Apple's platform in a piece for Harvard's Nieman Lab.

It can be tough to understand the questions in these complex news company/aggregator relationships. In many ways, it comes down to how consumers understand what they’re getting from whom.

Ask people and many will tell you they’re getting news “from their phones.” And they are. But The New York Times — like all other news publishers who see reader revenue as the only route forward — wants them to know they’re getting that news from them. The Times want a direct reader relationship — one that can hopefully be converted to subscription.

ON THE MOVE

The Senate approved the nomination of Dr. Sethuraman Panchanathan, chief research and innovation officer at Arizona State University, to become the 15th director of the National Science Foundation...Social media helper Hootsuite named Tom Keiser, formerly COO at Zendesk, as its new CEO. He replaces Hootsuite founder Ryan Holmes, who announced plans to step down last year and will remain as chairman....Zoom hired Jason Lee, senior vice president of security operations at Salesforce and a longtime Microsoft veteran, as its new chief information security officer...Opendoor hired Mark Kinsella as vice president of engineering. Mark arrived from Lyft, where he led driver engineering...Video game developer Ubisoft suspended Tommy François and Maxime Béland, heads of worldwide development, after an internal investigation into claims of sexual misconduct.

IN CASE YOU MISSED IT

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Should Facebook investors ride out the ad boycott—or cash out? By Anne Sraders

Why Twitch banning Donald Trump isn’t a big deal By Danielle Abril

The encryption wars are back on in Congress. Here’s what’s at stake By Robert Hackett

The founder of Vice Ventures on addressing diversity and inclusion among VC investors and portfolio brands By Rachel King

‘Winning Now, Winning Later’ author David Cote on his secret to corporate creativity By Shawn Tully

Fortune/IBM Watson Health 100 Top Hospitals 2020: Health Systems By Fortune Editors and IBM Watson Health

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

BEFORE YOU GO

Friday is a holiday in the U.S. and there won't be an issue of Data Sheet. It's also the day that Hamilton starts streaming online. If you're a fan, don't miss comedian Katherine Ryan's uproariously funny critique that bites even deeper in 2020. To build momentum for the online debut, Disney has been releasing short clips of musical numbers from the show, including "Satisfied," "The Room Where It Happens," and, of course, "Alexander Hamilton." There's a million thing I haven't done, but we'll send you a few more newsletters before then. Just you wait.

Aaron Pressman

@ampressman

aaron.pressman@fortune.com