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Best Buy is a Dinosaur and Canary

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Best Buy is a Dinosaur and Canary
 
 

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Best Buy is a Dinosaur and Canary

You might be tempted to lump recent news about Best Buy’s disappointing holiday performance into the long-running narrative about that retail giant’s slow slide toward irrelevance and extinction. Don’t. Or, at least, don’t stop there. There’s more to the story. And it makes the story even uglier—not only for Best Buy.

Yes, Best Buy is a dinosaur. But it is also a canary. The cause of its bleak quarter is an early warning for Apple, Samsung and others that hope to continue extracting riches from smartphones. It also signals strategic opportunities for Google, Microsoft, Amazon and others.

Dinosaur

Best Buy is being slowly and perhaps inexorably Amazoned. The fact that Best Buy has survived thus far is a tribute to the great retailer that Richard Schulze, Brad Anderson and others built. Unlike Circuit City, Best Buy has yet to crash into the ground—but only because it has so far to fall.

Let’s face it: The game is rigged against Best Buy. How else to describe a competitive dynamic where it has to compete on price against Amazon? Best Buy is battling a competitor that has a structural cost advantage, higher customer satisfaction and carte blanche from its investors to operate at slim margins.

Hubert Joly, Best Buy’s latest CEO, seems to be doing a valiant job of cutting costs. To win, however, he has to become more efficient than Amazon while improving customer satisfaction and delivering the higher margins that his own investors demand. What are the odds of that?

There will be ups and downs for traders in Best Buy’s stock (as the last 12 months demonstrate) but for long-term investors and the company itself, the trajectory is not promising.

Canary

Smartphones will follow a path toward faster, better, cheaper and less-profitable models. This is an inevitable consequence of Moore’s Law. Best Buy’s bleak performance signals how surprisingly fast that is happening. It is a warning that others must also face: Demand is softening, competition is intensifying and profits are shrinking.

Best Buy was particularly hurt by these factors because of its suspect business model. But Best Buy, which had committed to matching others on pricing, got its fair share of the market; the problem was that demand was soft across the board.

Looking forward, other players will have to contend with the rapidly changing smartphone market, too.

Smartphone industry players will be faced with more and more saturated developed markets in the US and Europe. Penetration has reached an estimated 60 to 70 percent in the US and Europe. Growth will become restricted by contract-renewal cycles and will require stealing customers, as opposed to meeting new demand. Qualcomm has already announced that it anticipates a slowdown in smartphones.

There are massive market opportunities in China, India, Brazil and other emerging regions. But these markets have a different dynamic and do not offer the rich veins of profits that Apple and, to a lesser extent, Samsung has enjoyed to date. Emerging-market consumers and mobile operators are more price-sensitive. Emerging markets are also filled with local competitors that are armed with faster, better and cheaper technology than Steve Jobs could have imagined in 2007 and that are ready to adapt to local tastes and conditions. These conditions do not bode well for Apple’s reliance on older iPhone models to compete in markets like India.

The more interesting competitive market laboratory is in China. Apple’s China Mobile deal now fuels an intense competitor ecosystem. Apple might do well for a time because of pent-up demand in a brand-conscious market. Over time, however, formidable competitors will emerge out of the intense competition for such a large, lucrative market.

In both developed and emerging markets, the rapidly maturing technology will force the industry to contend with a version of the rigged game that Best Buy is losing against Amazon—and this might be the biggest game changer of all. Instead of Amazon, the industry’s arch nemesis is Google.

Google, armed with Motorola, has the luxury of viewing smartphones as a channel for its core search business. It doesn’t have to make money on the devices. It just wants to push users to the Internet. Google will inevitably push smartphone prices as low as possible. Motorola CEO, Dennis Woodside, is already talking about a $50 smartphone.

This is analogous to Las Vegas casinos giving away fine dinners and great shows to draw customers to their casinos. It is just a matter of time before other major players, like Microsoft (armed with Nokia), Amazon (armed with the Kindle Fire) and Alibaba, adopt the same strategy.

The confluence of these trends will strike hard at the industry’s bottom line. Apple and Samsung enjoy more than 100 percent of industry profits, and these profits represent a significant portion of their respective corporate earnings. Samsung has already announced that its latest-quarter results declined both over the previous quarter and over the prior year. It is estimated that smartphone profits account for more than half of Samsung’s earnings. Because of intensifying competition, others might win market share, but expect more and more of the profit pool to be competed away.

The Need for New Killer Apps

Apple, Samsung, Qualcomm and others are not doomed to follow Best Buy to extinction. Unlike Best Buy, their assets and scale remain immensely valuable. Apple, in particular, is at the top of its game. It will undoubtedly announce another “best quarter ever” next week. It still has much work to do to reap the benefits of its China Mobile deal, but no competitor or new business model has yet turned its strengths into liabilities.

The importance of Best Buy’s canary-in-the-coal-mine warning is that it signals that now is the time to get very serious about the Next Big Thing. There is bound to be one after smartphones, and, by all rights, today’s leaders have first rights to invent it.

Can they do it?  Please share your comments below.

* * *

Chunka Mui is the coauthor of The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. Follow him at Facebook, Twitter @chunkamui or at Google+.

For more on the challenges of translating success in one computing class (e.g. mainframes, minicomputers, personal computers, smartphones, etc.) into the next, see his earlier articles Tim Cook, Apple and wearable computing:

Will Tim Cook Be the Next Steve Ballmer?

Will Wearable Computing Be Tim Cook’s Rubicon or Waterloo?

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Update: 11

Best Buy Accidentally Revealed How Much Motorola's Google-Powered Smartwatch Will Cost (GOOG)

Source: The Business Insider

Motorola is expected to reveal more information about its Moto 360 smartwatch next month, but it looks like Best Buy has already beat them to it. The electronics retailer posted a product page for Motorola's new smartwatch, revealing that it will cost $249.99. At that price, the Moto 360 will cost a little more than Samsung's Gear Live smartwatch ($199) and the Pebble Steel ($229), but slightly less than the Samsung Gear 2 ($299). ...
Source: The Business Insider   Full article at: The Business Insider 3 days ago, 7:35am CDT
 


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Update: 10

HUGE MOTO 360 LEAK: Best Buy lists Moto 360 official specs and price

Source: BGR

Best Buy on Sunday listed its product page for the upcoming Moto 360 smartwatch, as discovered by Droid-Life, revealing in the process the official price of the highly anticipated Android Wear wearable device, as well as its full specs and features. Many details about the Moto 360 were already known, as Motorola shared certain things about the device, while keeping other hardware details secret – Best Buy's listing, since removed, basically reveals everything there is ...
Source: BGR   Full article at: BGR 3 days ago, 6:30am CDT
 

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Update: 9

BestBuy Moto 360 listing accidentally goes live, reveals price of the upcoming wearable

Source: Neowin

Although the Moto 360 is yet to be unveiled, a Best Buy listing accidentally revealed the specifications of the highly anticipated smartwatch, along with its price before being taken down. Read mor ...
Source: Neowin   Full article at: Neowin 3 days ago, 5:20am CDT
 

Update: 7

Moto 360 Smart Watch leaks on Best Buy

Source: I4U News

Best Buy has leaked the upcoming Motorola Moto 360 smartwatch revealing many more details about the iWatch competitor. We already knew about the Moto 360, but now we pretty much know ...
Source: I4U News  Full article at: I4U News 3 days ago, 1:36am CDT
 

Update: 6

BestBuy reveals Moto 360 price and full spec sheet, says it's 'coming soon'

Source: Tech.co.uk

The Moto 360 smartwatch will cost $250 (around £149, AU$269) when it goes on sale this year, according to US big box retailer BestBuy.The electronics store has listed the Android Wear device on its website, complete with the price and a complete spec sheet, while advising visitors it is 'coming soon.'The listing promises the Moto 360 will have a 1.5-inch LCD display with 320 x 290 resolution and 205 ppi, a Texas Instruments processor, a built-in ...
Source: Tech.co.uk   Full article at: Tech.co.uk 3 days ago, 1:25pm CDT
 

Update: 5

US retailer reveals Moto 360 price and spec sheet, says it's 'coming soon'

Source: Tech.co.uk

The Moto 360 smartwatch will cost US$250 (around £149, AU$269) when it goes on sale this year, according to US big box retailer Best Buy.The electronics store has listed the Android Wear device on its website, complete with the price and a complete spec sheet, while advising visitors it is 'coming soon.'The listing promises the Moto 360 will have a 1.5-inch LCD display with 320 x 290 resolution and 205 ppi, a Texa ...
Source: Tech.co.uk   Full article at: Tech.co.uk 3 days ago, 1:25pm CDT
 

Update: 4

Moto 360 Shows Up at Best Buy for $249, Outs List of Features (Kellex/Droid Life)

Source: Techmeme

Kellex / Droid Life: Moto 360 Shows Up at Best Buy for $249, Outs List of Features  —  We are expecting to get official Moto 360 launch details when Motorola hosts press at a September 4 event in Chicago, but Best Buy may have gone ahead and let us in on all so ...
Source: Techmeme  Full article at: Techmeme 3 days ago, 1:10pm CDT
 

Update: 3

Buyer's Guide: Discounts on Retina iPad Mini, MacBook Air, Mac Pro, Apple Accessories, and More [Mac Blog]

Source: MacRumors

This Week's Buyer's Guide includes deals on the Retina iPad mini, the iPad Air, the 2013 Retina MacBook Pro, the 2014 MacBook Air, and several different Apple accessories. There aren't many deals on the iMac, the iPad, or the 2014 Retina MacBook Pro this week, but make sure to check back next week for new discounts because prices tend to fluctuate on a week-to-week basis. Retina iPad mini Best Buy is offering $50 off all of its Retina iPad m ...
Source: MacRumors   Full article at: MacRumors 5 days ago, 2:52pm CDT
 

Update: 2

Best Buy's smart home hub "Peq": $9.99 a month for service, hardware bundles start at $120 (Dave Zatz/Zatz Not Funny!)

Source: Techmeme

Dave Zatz / Zatz Not Funny!: Best Buy's smart home hub “Peq”: $9.99 a month for service, hardware bundles start at $120  —  Meet Peq, The Next Smart Home Hub  —  As if we didn't have enough smart home hub entrants, Peq appears poised to launched.  Pronounced “peek”, we be ...
Source: Techmeme  Full article at: Techmeme 6 days ago, 3:55pm CDT
 

Update: 1

Man asks Siri where to hide the body after murdering roommate, Siri offers suggestions

Source: BetaNews

Most of us are used to asking Siri where the nearest pizza place or supermarket is. He/she has become an almost indispensable part of some iPhone users' lives. But would you ever ask Siri how to hide a dead body? That's exactly what one Florida man did two years ago. Pedro Bravo, 20, is currently standing trial accused of kidnapping and strangling his friend Christian Aguilar in September 2012 after an argum ...
Source: BetaNews   Full article at: BetaNews 1 week ago, 2:54am CDT
 

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