Best Buy (BBY) is a big seller of wireless gadgets like laptops and mobile phones. Now it wants to sell the services they communicate over, too. In late July the nation's leading consumer electronics retailer said it would begin reselling Clearwire's (CLWR) 4G mobile broadband service under its own brand, Best Buy Connect, starting in 2011.
Dozens of companies have tried unsuccessfully to build a business providing wireless voice and Web access over networks leased from others. ESPN Mobile, Disney Mobile, and Amp'd Mobile are among the ventures that failed in a field known for its high setup and marketing costs and paper-thin margins. "It's been a disaster," says John Strand, CEO of Strand Consult in Denmark. These so-called mobile virtual network operators (MVNO) look like traditional wireless carriers to customers but don't own or maintain their own networks.
Best Buy thinks it can succeed where so many others haven't because it won't have to spend heavily on the setup and marketing costs that tripped up other players. The $49.7 billion retailer already has call centers to handle customer service inquiries. Distribution? Best Buy will sell mobile plans in 1,017 of its 1,089 stores in the U.S. and market them in the millions of local newspaper inserts that it already produces to advertise its consumer electronics gear nationwide. One of the additional costs, the retailer says, will be sending its new broadband customers a monthly service bill. "The economics of this business model are very solid," explains Jed Stillman, Best Buy Connect's vice-president for business development. "The distribution aspect that's been costly and difficult for others is not there."
Best Buy says it hopes to turn a profit with Best Buy Connect. It also has a strategic reason for launching the service: It wants to become a one-stop shopping locale as the market for mobile broadband devices takes off. The company already says it sells one in three PCs in the U.S. ABI Research expects the number of wireless-enabled electronic devices—not including phones and laptops—will double, to 5 million, in 2011. That includes e-book readers, Internet-ready televisions, and car navigation units. In early August, Best Buy's chief technology officer Twittered that the company was investigating its own tablet computer. "We are just at the tip of the iceberg," says Michael Antieri, president of AT&T's (T) unit promoting wider use of wireless-enabled devices. "There [eventually] could be hundreds of billions of machines, sensors, [and] devices wirelessly enabled."
In its stores, Best Buy already sells wireless broadband service offered by Verizon Wireless, Sprint Nextel (S), and AT&T. So with the rollout of Best Buy Connect, the retailer is set to compete with those partners. AT&T declined to comment. Sprint spokesman Scott Sloat says "partners like Best Buy have access to additional channels that can reach customer segments that Sprint may not be reaching." Best Buy recently began reselling Sprint's 3G service under its own brand. Shaw Wu, an analyst at Kaufman Bros., says there are mutual benefits for telecom operators: "They need Best Buy, and vice versa."
The retailer says Best Buy Connect's edge will be its ability to provide customers with one-stop shopping for a wide range of wireless devices, broadband, and customer service. "Best Buy Connect is going to be right for some people and not right for others," Stillman says. "At the end of the day, they'll choose."
The bottom line: Eager to position itself for growth in the sale of wireless-enabled devices, Best Buy is starting its own mobile broadband service.