
Best Buy Should Buy Consumer Electronic Startups - iamvictorious
http://iamvictorio.us/post/29837814377/best-buy-should-buy-consumer-electronic-startups
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patio11
Not exactly my field, but my understanding is that large retailers sometimes
do do outsourced product development roughly similar to this post's
suggestion. Typically, that is a result of someone in direct sales building a
_monstrously_ successful product (relative to other direct sales items), then
using that as leverage to get the chain to stock it on terms which are more
favorable than their usual ones. (Consumer electronics manufacturing is a
_tough market_ , kiddos, and the folks who control the distribution channels
very aggressively remind you that if you don't give them very favorable terms
and also _pay them for pushing your product_ then they will find someone who
will.)

If you've got something which is profitable in direct sales but is not yet a
monstrous brand name, it doesn't make sense for you to sell to Best Buy (why
serve in heaven when you can reign in... wait, this doesn't work if heaven is
Best Buy) and it doesn't make sense for Best Buy to buy you, because you're
probably selling something that a Chinese factory can produce in a
functionally equivalent fashion for 1/3rd the price.

The asset is the brand/proven distribution channel. (That's why e.g. Magic
Bullet survives when you can get functionally equivalent food processors for
less _literally adjacent to it_ in the store. The functional equivalents have
higher margins and would have displaced the Bullet but for the Bullet being
the customer favorite due to, well, really good infomercials.) Best Buy
doesn't _really_ want to buy that from you, because you'll peg the price to
the existing distribution channel that you own which they have no desire in.

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ChuckMcM
This.

Too many people confuse distribution and product development.

While I laud the OPs suggestion that retailers like Best Buy might be more
competitive if they could source products that Amazon cannot, there is an
existence proof for this called "Pier 1 Imports" whose "special sauce"
consisted almost entirely with seeking out niche suppliers, locking up a
retail relationship with them, and putting their stuff into stores. Great for
craft kinds of things but not so much consumer electronics.

Now if you want to go so far as to say there is an emergent market for 'craft'
electronics (and there is some evidence on Kickstart to suggest this looking
that the Blink project for example) then perhaps what should really be the
point is to create the 'Pier 1' of those electronics. The seeds of that would
seem to be in Makershed.

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sadga
But Amazon has Marketplace and 3rd-party sellers, so how could Best But get
any product that Amazon cannot?

~~~
mc32
The way I understood the article is that BB (would) buy these small companies
out (and thus lock up the distribution and lock out the Amazons of the world).

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LargeWu
This is a high-risk strategy, and I think it would be very cool.
Unfortunately, Best Buy culture basically eschews risk. Being successful in
that company mostly involves not doing anything that will get you noticed in a
negative way, and eventually you'll get promoted. The entire company has
become all about squeezing out profits on commodities at ever-shrinking
margins - and we've seen how well that is going. Everyone there felt pretty
smug when they were wiping the floor with Circuit City, but now they are being
pwned by Amazon. I just see too much inertia to turn that ship around. If
Schulze can take the company private again, then _maybe_ they can recover, but
mostly I think they are doomed.

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calbear81
Best Buy has its own house brands like Dynex and Rocketfish so they have some
experience working with outsourced product development but I think there's a
bigger opportunity to transform the Best Buy experience. The biggest strengths
of BB is that they're a well known brand with supplier connections with every
major CE company in the business along with a large network of stores which in
many cases are positioned in very good areas with high visibility and good
accessibility. On the downside, they have a reputation for having poor
customer service and the appearance of having incompetent workers turns a lot
of high value customers off. Here's what I would do if I were Best Buy:

1) Trim the workforce and focus on service - Your biggest asset is that when
anything goes wrong, just come back into Best Buy and you'll take care of it.
This is not easy for online channels to replicate especially when shipping
costs continue to rise and it's a hassle to box and ship a 60" LCD TV back.

2) Move away from a SKU focused experience - Given most of Best Buy's
customers are probably in the middle-America, slightly older, demographic, I'm
surprised that they just put things on shelves and expect people to know how
to pick/find the right item. This forces people to rely on the Blue Shirts
which in many cases results in a negative experience (see Louis CK show about
Blue Shirts). Instead, I would transform the store into an Ikea showroom like
experience where people SEE, EXPERIENCE, PLAY with all of the technology and
see how it's applied in real life. This would also reduce the number of
salespeople you need milling around.

3) Reduce SKUs - BB is never going to have as many SKUs as Amazon so I would
focus on carrying a more curated set of products at a few logical price
points. This could lead to easier support and help the Blue Shirts develop
more expertise since they don't have to know hundreds of products.

~~~
incision
That's right along the lines of a possibility I've considered for BBY myself.

It would be amusing to see BBY become a champion of customer service with a
curated selection as I feel like they were a major force in promoting price
and selection over service in the first place.

>Your biggest asset is that when anything goes wrong, just come back into Best
Buy and you'll take care of it.

One of the things that permanently soured me on BBY several years ago was
seeing an elderly woman about to break into tears arguing with a manager over
the "service plan" for her TV. The manager was explaining that she wasn't
entitled to a replacement unless BBY spent longer than 45 days trying to fix
the one she purchased. Apparently, it had only been 42 days at the time of the
argument.

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hapless
This hypothetical business model exists already: It's called Brookstone.

They go out and find unique gadgets to sell at high markups in malls. It would
be interesting to see that format adapted to Best Buy's "big box" real estate
and store format. (In other words it is hard for me to imagine how it would
work.)

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replicatorblog
Yep! You beat me to it. I wonder if it would be possible for some big brands
like Dyson, Samsung, etc. to band together and maintain the retail show rooms.
Perhaps a new holding company could be formed to manage the real estate on a
more "Walmart" like 2-3% margin with the HW companies bearing most of the cost
of retail, but also gaining a much larger chunk of margin.

I think retail is going to become a very interesting space over the next 10
years as the Big Box model gives way to an Amazon same day solution on one
side and a high touch, high service model on the other.

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brucehart
I read somewhere that JCPenney is shifting to a strategy like this for
clothing brands. The stores will start to shift to a cluster of mini-showrooms
that each showcase a different brand. My first thought when I heard this is
that the brands that are strong enough to be successful in this format would
have already have their own store in malls.

I think such a strategy would only work for marquee brands. Apple can get away
with a store with nothing but Apple products, but I wouldn't want to buy a TV
from a store that only sold LGs. I would want to compare across brands since
there is little to differentiate an LG from a Sharp or Samsung.

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sethev
This post seems to assume that Best Buy is in the business of selling consumer
electronics but they're not. They're in the business of selling services that
are attached to consumer electronics.

I'd wager that Best Buy makes at least an order of magnitude more profit
removing spyware for $180 then they do selling a $500 laptop. Not everybody
buys those services, though, so they need high volume items to sell to support
that revenue.

The $359 appliance to "cook meats and vegetables in airtight plastic bags in a
water bath" is a perfect example of something that gives internet retailers a
huge advantage - being able to find the people before distributing the item.
But trying to plug that into Best Buy's business model would kill the thing
that actually earns them a profit.

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yllus
I thought this post was absolutely brilliant. It's completely outside of Best
Buy's current corporate culture, but perhaps they understand that
experimentation is greatly needed.

I envision a specific, labeled section within Best Buy stores that is titled
something along the lines of, "Best Buy Labs". It would contain non-UPC
products of quality and would attract attention almost purely out of consumer
curiousity. ("I wonder what they have in there this week?") The contents of
the section would vary slightly from region to region, perhaps to play up
local goodwill. Returns and exchanges would pose a challenge, but I see
significant upside.

Edit: I forgot to add that it would be critical to keep this section clear of
infomercial style gimmick products. If the perception turned from this being a
laboratory to a Real TV store the idea would be sunk.

~~~
CamperBob2
An interesting idea. If it's viable at all, though, shouldn't it be viable
independently of whether a big-box chain does it?

It almost sounds like you're describing what Radio Shack should have been.

~~~
yllus
Key in my mind is a large number of casual walk-bys of people with no hobbyist
interest in electronics. That would be Best Buy's competitive advantage in
this space.

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tryitnow
It would more often make sense for a consumer electronics manufacturer, not a
retailer, to buy a startup. The manufacturer can sell in a variety of
channels, whereas the retailer can sell only in their channel (most of the
time). The manufacturer has lower margins (because the retailer will take
their cut), but I'm willing to bet that they more than make up for it on
volume.

So it seems like a CE manufacturer will always outbid a Best Buy for a
startup.

I think this is why you don't see Best Buy or other retailers buying CE
startups. The only ones available to them would be the ones that CE
manufacturers aren't buying and you'd have to ask yourself why they wouldn't
buy them.

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lolryan
Interesting information point to add: Chumby designed a product for Best Buy
(the Insignia Infocast). Not sure how successful it was, but I'm pretty sure
that there are a lot of details that we are not privy to.

~~~
joezydeco
The Infocast was a nice little product. I have one sitting next to me right
now. It was not, however, a big sales success. I bought mine on closeout in
late 2010.

Part of the problem was that Best Buy didn't know where to put the thing, nor
how to market it. The 3.5" model was sitting next to the alarm clocks. The
larger 8" model was sitting next to the Sony Dash in the picture frame area.
You can figure out the rest from there.

~~~
georgemcbay
The Sony Dash was also "chumby powered". It sold a lot better than the
Infocast did, though. The Dash was in many ways the best chumby you could get
in that it had a capacitive touchscreen, it had the least ugly industrial
design of all the chumbys (IMO), it supported netflix, etc. OTOH it had gaping
problems like Sony's insistence on using BIVL (which among other things makes
the Dash the worst chumby for using Pandora and a few other services), it was
locked down (unlike all other chumbies you can't just ssh into it and start
hacking away), etc.

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K2h
Off topic,

The example given of an appliance that cooks food in a sealed bag in a water
bath called sous-vide [1] is interesting. I heard about this technique from a
coworker for camping and cooking omelets, where there is no cleanup and
everyone can make the omlet how they want. I had no idea this was a legitimate
cooking technique - cool, now I know what it is called.

[1] <https://en.wikipedia.org/wiki/Sous-vide>

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dromidas
<Sarcasm>

Yeah, just what start ups need to succeed; Best Buy. I've always wanted to see
start ups offering "Performance Service Plans" on their product.

</Sarcasm>

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incision
Seems me that Best Buy would be better served by reinventing itself as an
incubator of/investor in these products and selling them on Amazon.

Nothing is going to save the dead model of service contract bullying and
cavernous stores where everything costs 50% more than it does (or would) on
Amazon.

In any case, I'd be very surprised if Best Buy has the guts to do anything
radical.

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andyjsong
They are trying: <https://www.facebook.com/bestbuy/app_212967045493154?071612>

And failing miserably, just look at the ideas that qualified for top 10 and
the the other 61 that were not picked... seriously? a iPod Shuffle attached to
a shoe?

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rwhitman
Or maybe there's a market for independent electronics stores to sell
independent gadgets.

~~~
dromidas
I believe its called Kickstarter :)

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guscost
Makes total sense.

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drivebyacct2
What self-respecting Consumer Electronic Startup would sell themselves to Best
Buy?

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ceejayoz
The startup that wants a 1,000+ store distribution?

