Best Buy Should Buy Consumer Electronic Startups

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 <i>monstrously</i> 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 <i>tough market</i>, 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 <i>pay them for pushing your product</i> then they will find someone who will.)<p>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.<p>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 <i>literally adjacent to it</i> 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 <i>really</i> 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 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 <i>maybe</i> 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:<p>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.<p>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.<p>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.

This hypothetical business model exists already: It's called Brookstone.<p>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.)

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.<p>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.<p>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.<p>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.<p>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.

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

Off topic,<p>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.<p>[1] <a href="https://en.wikipedia.org/wiki/Sous-vide" rel="nofollow">https://en.wikipedia.org/wiki/Sous-vide</a>

&#60;Sarcasm&#62;<p>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.<p>&#60;/Sarcasm&#62;

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

They are trying: <a href="https://www.facebook.com/bestbuy/app_212967045493154?071612" rel="nofollow">https://www.facebook.com/bestbuy/app_212967045493154?071612</a><p>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.

Makes total sense.

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