Solutions Overview Customer Profile The Virgin Entertainment Group (VEG) operates 20 Virgin Megastores in the United States and North America, as well as stores in Europe and Japan. Virgin Megastores offer some of the most extensive inventories of entertainment products in the world. Larger Megastores carry over 300,000 CDs, 10,000 DVDs, and aisles of video games, books and other products. Business Situation Virgin wanted to boost sales in its North American Megastores. The company determined customers were having difficulty searching through the vast amounts of products available in the giant retail spaces. Solution Virgin turned to Microsoft’s Windows Media® Technologies to create a state-of-the-art Web-based kiosk that provides multimedia product information on over 200,000 CDs, DVDs, and other items. The cornerstone of the kiosk is Microsoft’s Windows Media-based streamed audio and video files, which customers use to preview CDs and movies. Benefits Higher customer satisfaction from greater ease in learning about products and locating them in the stores Higher sales per customer because of lowered barriers to customers for making purchasing decisions and finding products Improved promotion and sales of older or obscure “deep catalog” items Lower cost from less use of staff to answer product questions Software Kiosk Client: Windows 2000 and Windows XP operating systems Internet Explorer 5.5 Windows Media Plugin 7.x Visual Basic custom application Windows 2000 Server with Internet Information Services 5 SQL Server™ 7 Database running on Windows NT 4.0

The Virgin Entertainment Group operates one of the largest media product retail chains in the world. Its 20 U.S. Megastores range in size from 35,000 to 70,000 square feet and carry up to 400,000 music CDs, as well as some of the most extensive inventories of VHS movies, DVDs, video games, and books. While such a massive selection sets Virgin apart from competitors, its extensive inventory can prove daunting to shoppers. Customers often lack enough knowledge to make a purchase decision about many of Virgin's products—especially less promoted or obscure CDs and videos. So Virgin turned to Microsoft and its Windows Media® Technologies to develop a state-of-the-art electronic product kiosk. The showcase components of the kiosk are Windows Media audio and video streaming files, which customers use to preview music CDs and videos.

Case Study Contents

• Company Profile
• The Solution
• The Challenge: In-Store "Searchability"
• Windows Media Audio and Video
• Integrated Development Platform
• Lowering Costs, Increasing Customer Satisfaction, Increasing Sales
• Future

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buying. But most of those systems are limited in the number of CDs they can support at one time, and they usually lack any additional product information. Virgin’s old listening station system, for example, could only maintain previews for 1000 titles. And no retailer offers an analogous "viewing station" for video previews. The VPS kiosk, however, will eventually contain clips and information for nearly every CD and movie in stock at the Virgin Megastores, adding up to over 2 million streamed media files. The first VPS machines debuted June 2001 in the company’s Sunset Boulevard store in Los Angeles, followed by an installation in its Dallas store in September (both stores with five kiosks). And in its biggest deployment to date, Virgin turned on a network of 20 VPS stations in its Time Square store in New York on October 25, coinciding with Microsoft’s launch of its Windows XP operating system. The Times Square kiosks are the first to run on Windows XP. A new store in Boston will open in February with 15 kiosks. The company will continue deploying the VPS in other stores throughout 2002. Most retail sites will include 10 to 20 kiosks. The VPS stations in each store are networked to a Microsoft® Windows 2000 Services with the integrated Internet Information Server 5.0. A separate database server runs Windows NT 4.0 with SQL Server™ 7.0. Kiosks are connected to the server on a LAN using 100 base-T Ethernet lines. Hardware includes a touch screen interface and a PC running an Intel 500 MHz processor, with 64 MB of RAM and a bar code reader. Virgin used the Visual Basic® development system to build the 27 KB thin-client kiosk application, which runs on either Windows 2000 or Windows XP operating system with Internet Explorer 5.5 and the Windows Media Player plug-in residing on the PC. Back to the top

Windows Media Audio and Video The key component of Virgin’s kiosk is Windows Media used for encoding, streaming, and playing the audio and video clips in the application. The Virgin team that designed the VPS credits Microsoft’s Windows Media for making the project possible. Duke says Windows Media provides the highest quality compressed audio and video available. "Byte for byte we get better quality and performance with Windows Media than any other format," Duke says. Windows Media compression technology plays an especially crucial role in the kiosk. Virgin cannot store and host the media clips on its local servers in each store because of copyright licensing issues. Streamed media must travel from remote servers run by Virgin content

partners, such as Muze Inc. That means the media clips travel over the unpredictable Internet with its assortment of crowded data lines and router bottlenecks. If the streams do not reach the kiosk in good shape or force customers to wait too long, a sale is lost and possibly a customer as well. Virgin is delivering the audio streams at 20 kilobits per second (kbps) and video streams at 100 kbps (video resolution on the VPS is at 240 x 180). Duke says these bit rates still provide sound and video quality good enough for enjoyable listening and viewing while making the files small enough to slip past Internet congestion. "This kind of kiosk was not possible one year ago without the compression advances now available in Windows Media," Duke adds. While all information offered by the VPS helps customers find the products they want to buy, the high quality audio and video previews are the most influential factor in the purchase decision. "It’s such a super aesthetic thought process that goes into CD choices. The cover art of an album or a paragraph of text doesn’t convey the essence of a musical recording. Only sound can do that," Duke says. Back to the top Integrated Development Platform The Windows development environment was also a huge part of the success of the kiosk, Duke says. Windows Media, unlike any other streaming media technologies, is seamlessly integrated with Microsoft Web software, including Internet Explorer and Windows 2000 Server.

The close integration of Windows Media with the rest of the kiosk’s software is the key to enabling rapid changes or easy expansion of functions, Duke says. Before joining Virgin, Duke worked as a producer for Sega Gameworks as well as building Internet sites for leading music labels such as Capitol Records and Blue Note Records. Many of these sites relied on Microsoft products and forced Duke to give the technology a try. "I was a gigantic skeptic, but what I noticed was that the projects I worked on using Microsoft technology got built faster and worked better than those that used other tech options," Duke says

Back to the top Lowering Costs, Increasing Customer Satisfaction, Increasing Sales Though Virgin is still developing measurement techniques to qualify the effectiveness of the VPS and its influence on sales, so far the retailer is impressed with early indicators. First, customer usage of the VPS kiosks is far above industry standards and Virgin’s expectations. The industry average for customer usage rates of kiosks—regardless the application—ranges from 25 to 40 percent (active use during store hours). But Virgin customers use the VPS kiosks 50 to 80 percent of the time, indicating that customers are lining up to use the machines, says Jan De Jong, vice president of information technology at Virgin Megastores. He says Virgin had hoped customers would use the kiosks 30 to 40 percent of the time. So just from this measure, De Jong says Virgin is enjoying a full return on its investment. Virgin, however, is still developing methods for accurately assessing the VPS’s impact on sales. Because the kiosks are not tied into the company’s retail sales system, tracking relationships between VPS usage and purchases is challenging. Nevertheless, anecdotal information is showing the kiosk to be an effective marketing tool for deep catalog items. De Jong says over 60 percent of products inquiries at the kiosks are for older or obscure CDs and videos, indicating the machines are providing much needed information to aid customer purchasing decisions. Unlike the latest Michael Jackson CD or Hollywood blockbuster movie, these alternative titles receive little if any marketing support. By opening up a new marketing channel for its entire inventory, Virgin expects the kiosks to increase sales while lowering costs. The VPS also fields many of the questions that customers would have directed at clerks, freeing them to manage other store needs. "We sell products in boxes that are closed (CD and video cases)," De Jong says. "This technology lets customers open the boxes and look inside to see what they are buying." Back to the top Future While the Virgin Preview System provides significant benefits to the Virgin Megastores, the company has only begun to tap the potential of this new marketing and customer service tool. As resources allow, Virgin also hopes to develop another core function to the VPS, called "MegaSearch." It will be an intelligent search engine using XML to tie each store’s inventory tracking system into the kiosk to help customers locate products and find out if an item is in stock. This capability will also enhance Virgin’s ability to measure the relationship of kiosk usage to product sales. When completely developed, the VPS will serve as a full-featured in-store ecommerce site where customers can not only look up product information, listen or view CD and movie clips, but also, for example, order out-of-stock items or other merchandise online. Virgin has already tested the viability of migrating the VPS onto in-store PDAs, networked via a 10-megabit wireless Ethernet LAN. De Jong says tests were successful and the company is considering such a deployment for the future. "The PDAs allow customers to bring up product information form , rather than the customers having to bring the products to the kiosk," he says. Given the VPS’s unique capabilities, Virgin is interested in private labeling the software to sell to other entertainment product retailers. Much of what Virgin is learning from its kiosk could help the company with its other Internet-based Web development projects. The retailer can apply many of the kiosk’s application features to its Web sites and track customer previewing and purchasing to create a selling environment that offers customers the products they’re looking for both in-store and online. Back to the top © 2002 Microsoft Corporation. All rights reserved. This document is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY. Microsoft, Visual Basic, Windows, Windows Media, and Windows NT are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. The names of actual companies and products mentioned herein may be the trademarks of their respective owners. Back to the top