Best Buy Should Buy Consumer Electronic Startups | Hacker News Reader

Best Buy Should Buy Consumer Electronic Startups

iamvictorio.us

35 pointsiamvictorious31 comments

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.

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.

>Now if you want to go so far as to say there is an emergent market for 'craft' electronics

You can also check out: https://www.tindie.com/

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

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).

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.

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.

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.

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.)

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.

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.

And also all the brands in SkyMall

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.

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.

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.

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.

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.

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.

Chumby is an interesting case, and a sad one. I think Chumby has a lot in common with much larger companies such as Nintendo, RIM, and HP, in that their business model was demolished by the iOS steamroller that they didn't see coming.

Unlike those other companies, Chumby didn't have the cash or the product-line diversity to put up any kind of a fight. If they had survived, they'd eventually find themselves running Android on commodity hardware, just like everyone else at the low end of the market for consumer gadgets is eventually going to have to.

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.

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.

Yeah chumby (disclaimer: I worked @chumby) was involved with 3 Infocast branded products.

The Infocast 3.5" (basically the chumby One in a different box)

The Infocast 8" (basically the chumby 8 in a different box, though the Infocast 8" preceded the release of the chumby 8)

An Insignia/TIVO co-branded television set (TIVO did the main UI for that device, but it didn't have DVR capability) and chumby did a bunch of apps for it.

So, yeah, Best Buy actually outsources development of a lot of products under the Insignia, Rocketfish, Dynex, etc brands, so this business being suggested isn't new to them... they are already in it. But they generally just make "me too" products with this model, I don't think they have the will nor the vision to fund truly groundbreaking CE work.

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

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>

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.

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?

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

I believe its called Kickstarter :)

Makes total sense.

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

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

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