Exclusive Interview: Best Buy CEO Says Tablet Sales Are “Crashing,” Hope for PCs
Walt Mossberg
Re/code has landed in Minneapolis to talk to the folks at Best Buy – the last standing nationwide big-box, bricks-and-mortar consumer electronics retailer, with over 1,000 main stores and hundreds of smaller mobile device stores.
The chain, survivor of a breed that once included competitors like Circuit City and CompUSA, is waging a multi-front battle for relevance and even survivlal. Its foes: Online-only alternatives like Amazon, deep discounters like Walmart and high-touch boutique stores like Apple.
It’s also battling the trend called “show-rooming” in which consumers try out products in a store like Best Buy but then buy online from e-tailers like Amazon. To fight this, it has expanded its price matching to include online sellers. And it is revamping its website (which was ugly, hard to navigate and hard to search) in the hope that it will become a bigger shopping destination for people who start, or even complete, purchases online.
But it may have more fundamental problems: Sinking sales of Windows PCs, once a reliable Best Buy mainstay, which had their worst sales year ever in 2013; and, lately, a dive in the sales of the presumed replacement for all those laptops: Tablets.
Best Buy CEO Hubert Joly gave an exclusive interview to me at company headquarters in Richfield, Minnesota, a Minneapolis suburb.
Re/code: What is happening with the PC? Why is it declining quarter after quarter? Will it turn around?
Hubert Joly: So, we’ve actually had a revival of the PC business at Best Buy [in the company’s first quarter]. Part of it was that Microsoft stopped supporting the old version.
Stopped supporting Windows XP?
Yes. So that was good. From a technology standpoint, customers now have a broad range of choices with the tablets and the phones. So, regardless of which device you use, you’ll want to make sure that it’s working as best as it can, particularly if you need it to manage the day to day running of your business. If you have a website that can be accessed via a computer or device, you’ll want to make sure that it has had some sort of performance testing, (click for more info) before it gets launched to the wider community, so it is in a fine working condition and can enhance your success. That’s why making it compatible with both tablets and phones could be beneficial to you in the long run. So some of us have a phone and a tablet and a laptop, but many people can now converge to either a tablet and a phone or a phone and a laptop. So you have more diversity of offers.
The tablets boomed and now are crashing. The volume has really gone down in the last several months. But I think the laptop (or ordenadores portátiles as they’d say in Spain) has something of a revival because it’s becoming more versatile. So, with the two-in-ones, you have the opportunity to have both a tablet and laptop, and that’s appealing to students in particular. So you have an evolution. The boundaries are not as well defined as they used to be.
If you take the [Microsoft] Surface, is it a tablet or a laptop? I think it’s both. So I don’t think the laptop has said its last word.
Is this just a Best Buy phenomenon? Sales have certainly been dropping overall. What’s the deal?
In this sector, it always depends on the next generation of innovation, right? So, if the Mac continues to do interesting things and converge across the entire Apple ecosystem, that could be very positive. And, you know, the Mac sales have actually done quite well.
Part of the problem is that, for the Windows market, the deflation has been enormous. So you now find laptops at $300 that used to cost $1,000. So, if there’s more innovation at the high end of Windows, then you can have a revival.
You said the tablet had “crashed.” Do you believe it’s going away?
Yeah, “crashed” is a strong word. So, the tablets have been an unbelievable phenomenon. I don’t think there’s a category that ever took off so quickly and so big in the history of tech.
The issue has then been that, once you have a tablet of a certain generation, it’s not clear that you have to move on to the next generation.
As a consumer?
As a consumer. I think replacement is the issue. The penetration has gone so fast that it’s reaching an amazing degree and therefore it becomes more of a replacement market, and the level of innovation in the past year has not been as great as it had been in the previous two years. So, there again, the jury’s out in terms of what’s going to happen, because it’s going to depend on what innovation comes to market. But you need a reason to replace.
And the smartphone?
In the U.S., we are now achieving levels of penetration that are quite significant and it’s evolving now into more of a replacement market. So, it’s still huge volume, but you don’t have the same growth here in the U.S.
The bulk of our business is in the U.S. and the U.S. market has grown mature.
What’s the third smartphone platform? Is it Windows phone? Is Windows Phone going to finally get off the mat in the developed world? Amazon believes their platform has a chance to become the third. What’s your take?
We don’t have a bet at this point.
No, this is not rented. What we’ve done is, we’ve made Best Buy the place where customers can discover, understand, these different ecosystems. There’s these giant ecosystems: The Apple world, the Android/Samsung world, the Windows world. And so, for the customers, it’s a very unique opportunity to see it in one place, and in the space of half an hour, to be able to talk to our various specialists, and touch, feel, experience these products.
But it’s our store. It’s staffed by “Blue Shirts” (Best Buy sales folks).
Why would people not just use your store as a showroom and then buy the products on Amazon?
Two simple reasons. One is our prices are competitive, and we match others’ prices. So, once you are in the store, you have no reason to leave.
If I go into my Amazon app while I’m in your store …
We’ll match the price. So we’ve taken price off the table. Because we think that customers come to us with good intentions.
So what do I have to do? Do I have to literally say, “Here on my phone you can see, Amazon has this TV for $100 less.” And you’ll just match it?
Yes, exactly. With a smile.
Am I going to have to go through a hassle?
With a smile. And so we’ve taken price off the table. And therefore the customers can take advantage of the service we provide: the advice, the Geek Squad, and the advantage of being able to pick up [online orders] in the stores. Or, if they didn’t like a product, they can return it to the store. So, we have unique things to offer that combine online and offline assets.
Do you assume your customers are starting the purchase process in the store, or starting online now?
So, according to Google, when people buy something above $100, the shopping journey starts online. So it’s really the “Web-rooming” phenomenon much more than the “show-rooming” phenomenon. Because we’re making our site a destination for customers who want to do research.
So you’re just as happy if I never go into your store but I buy from your website.
We love to serve you the way you’d like to be served.
So, why should I buy a phone from you rather than from the maker of the phone, like Apple, which has hundreds of stores, or the carriers? Don’t the carriers know more about the phones than you do?
So, if you’re interested in objective, knowledgeable advice, both on the plans – because it’s quite complicated, right? – and the devices, Best Buy is a very good place to shop.
In other words, if I go to the AT&T store, they won’t tell me about the Sprint plans, but you will?
Exactly. And we have the same prices, and that knowledgeable advice.
Is Best Buy going to be around in 5 years?
We’ll be around in fifty years. We have a unique role to play for customers.
Virgin Mobile intros a blank-slate smartphone plan you can customize any way you like
Kevin Fitchard
Next month, Virgin Mobile USA will offer a new, prepaid smartphone plan that is really dozens of different potential plans rolled into one. It can be an emergency plan with just the bare minimum of minutes necessary to keep your phone number active. Or it could be a data-centric plan loaded up with gigabytes.
It could become a social messaging plan, allowing unlimited tweets and Facebook posts, or it could turn your phone into a connected digital music player with no restrictions on audio streaming.
Virgin, which is owned by Sprint, is calling the program Virgin Mobile Custom, and it will be available starting August 9 exclusively at Walmart. The plan is limited to just three sub-$130 Android phones at launch: the ZTE Emblem and the LG Pulse and Unify. But Virgin aims to extend to other devices in the future, Sprint prepaid group President Dow Draper told me in an interview.
The high degree of customization comes from ItsOn, a company that specializes in next-generation carrier billing and policy. Some of you may already be familiar with ItsOn from its now defunct virtual operator Zact, which used the same customization tools in its plans. Zact was always intended as a showcase for ItsOn’s technology, and in that sense it accomplished its mission. Sprint recently signed a multi-year deal to license ItsOn’s service.
At the heart of Virgin Mobile Custom is an Android app, which can be used to set up a plan and tweak it at any time. According to Draper, a customer could select 1000 text messages initially, but in mid-billing cycle downgrade it to 500 messages. The customer would then be refunded for the difference, he said.
Voice minutes, messages and megabyte buckets can all be selected separately and they can be applied to individual phones or shared across five lines in a family plan. The app also comes with parental controls that can be used to finely tune the amount of talking, texting and surfing allowed on each phone.
The most interesting elements of Custom in my mind, however, are the app-specific add-ons. To tack on unlimited social networking – meaning apps like Facebook and Twitter wouldn’t count against you data plan – cost $15 a month. If you only Twitter regularly, you could buy a Twitter-specific add-on for $5 a month. Draper said other add-on choices include an unlimited music streaming option and an unlimited navigation option.
We’ve already seen T-Mobile go this route with its Music Freedom program, but these kind of toll-free zero-rated app plans are starting to pop up around the world. They’re an intriguing – though controversial – way for carriers to sell data in units more meaningful to the average consumer than the gigabyte.
Virgin will release more pricing details on the plan when the program launches next month.
Heads rolling at Beats as Apple eliminating redundant positions, Ian Rogers & Trent Reznor to stay on
Mark Gurman @markgurman
As Apple’s acquisition of Beats Electronics and Beats Music nears completion this financial quarter, the Cupertino and Santa Monica, California-based companies have begun work on transitioning select employees and technology resources from Beats to Apple, according to sources briefed on the transition. Apple executives have visited Beats’ Southern California headquarters this week and last week to offer groups of employees positions at Apple and to notify some members of the Beats staff that they will not be included in the transition.
Many Beats employees in development and creative roles have been offered positions at Apple. Many of these employees will be offered space in Apple’s Cupertino offices, but Apple is said to plan to retain the Santa Monica offices, and select engineers on the Beats Music streaming service will continue working out of Southern California. An email from Apple CEO Tim Cook detailed earlier this year that Beats hardware employees would transition to Phil Schiller’s team in Cupertino, so it seems likely that the headphone and speaker makers will make up the majority of the new Cupertino staff…
Beats employees in certain overhead positions, however, are said to not be so lucky. Beats’ support, finance and HR departments are said to have already been largely dismantled, with some workers being laid off in the past few weeks, a few offered definite positions in Cupertino, and others being offered positions until the end of January 2015. Apple is said to have this week set up a dedicated phone hotline for Beats employees to speak with Apple Human Resources staff about severance packages or transition plans.
Besides the transitioning of employees, Apple has begun work on transitioning the Beats Music technology to its own iTunes infrastructure. According to sources, the Beats technology is not easily compatible with Apple’s existing servers, so it is likely that parts of Beats Music will need to be re-architected in the near-future.
As for Beats’ top executive brass, both co-founders Jimmy Iovine and Dr. Dre have committed to working at Apple in some capacity for the foreseeable future. However, there is still some uncertainty regarding the fate of Beats Chief Creative Officer Trent Reznor, and Beats Music CEO Ian Rogers has not indicated if he will or will not join Apple once the impending transaction is complete (Update: a source now says that both Reznor and Rogers will join Apple). Apple and Beats announced their merger earlier this year with the goal of improving Apple’s music services. Apple currently offers the Pandora-like iTunes Radio service, the iTunes Store, and iTunes Match, but as services like Spotify and Rdio continue growing in popularity, it is important for Apple to move forward with a true streaming service such as Beats by way of bringing on the best possible personnel and technology resources.
Yelp turns a profit, finally
Benjamin Snyder @WriterSnyder
The online review site Yelp announced on Wednesday something it hasn’t since going public in 2012 – it turned a profit. Yelp reported a $2.7 million gain for the quarter, or 4 cents per share.
It’s a big milestone for a company that has been a consistent money loser. Whether it can keep up the momentum, of course, is another matter.
Analysts had expected a loss of 3 cents per share for the company, which makes most of its money through online ad deals with small and medium-sized businesses. Business turned out to be more brisk that predicted, listing the company to its profit.
Average monthly users during the quarter rose 27% from the year-ago period to 138 million. Sales grew 61% to $88.8 million, up from analysts expectations of $86.3 million.
“We delivered great results this quarter,” Jeremy Stoppelman, Yelp’s CEO, said in a release. “While this is an important milestone, we still have a large local opportunity ahead of us.”
After news of the better-than-expected results, Yelp’s stocks rose 8% in after-hours trading to $75.60.
Twitter: the future’s bright – but more like Facebook than ever
Alex Hern
Just two days ago, there was a consensus, of sorts, around Twitter’s predicament. Its stock had fallen 44% over the course of the year, partially because of a drop-off in the number of new users it was getting each month. It seemed unexpected as if Twitter was not using any sensitivity analysis models to predict where their stock value would be ahead of time (read here for an example of such a model).
Eventually the company’s chief executive, Dick Costolo, admitted that the service wasn’t easy enough for newbies to get their head around.
Worse, the average revenue per user wasn’t rising anywhere near as quickly as Facebook’s; without the massive levels of personal data that its main competitor has, Twitter can’t deliver targeted ads with the same degree of accuracy.
Its competitive advantage lies in real-time advertising, charging companies to promote their tweets alongside sports, TV shows and current events (be they the kind seen on the best sports streaming sites or otherwise), but analysts complained that it hadn’t come far enough along in the practice to justify its valuation.
There were even rumours that Twitter was about to shift the goalposts, introducing new metrics to replace standard measures such as monthly active users (MAU) or revenue per user. That would have highlighted their strengths, but also been seen as an admission that they weren’t playing the same game as Facebook.
But after Twitter filed its quarterly financial report on Tuesday, the old fears were dead – and users were facing new ones.
The company reported revenue more than doubling to $312.2m, and MAU rose alongside, hitting 271 million people, a 24% year-on-year increase. Four-fifths of the its total ad revenue came from mobile ads in the quarter, and Twitter accounts for 2.5% of the world’s mobile ad.
Its growth is starting to vary, too. Twitter is growing the fastest in Asia-Pacific, according to figures from eMarketer, and is expected to increase its user base there by more than a third in 2014. Against that background, shares spiked, rising over 30% in after-hours trading, although still not undoing the tumble in the first half of 2014.
But if good news for Twitter means that users can sit back and be comfortable that there’s no major shake-ups ahead, Costolo has other thoughts.
Asked whether the company was considering rolling out an algorithmic timeline, taking inspiration from Facebook’s heavily algorithmic newsfeed, Costolo answered “I think it’s fair to say that we are not ruling out any kinds of changes that we might deliver in the product, in service to bridging that gap between signing up for Twitter and receiving immediate value… you will see a number of kinds of experiments that we produce there”.
If Twitter did make such a change, it wouldn’t be the first time the two major social networks had taken inspiration from each other.
Despite launching with radically different focuses, both Twitter and Facebook – as well as smaller networks like Google+, and LinkedIn – have been converging.
Nowhere is that more obvious than in the design of profile pages: all feature a large “header image” with a smaller profile picture inset on the side; all feature personal information going down one side, with a semi-curated selection of recent updates down the other; all feature rich media, embedded within the posts, as well as short excerpts from outgoing links.
But it’s not just profiles. In December 2012, just months after Facebook bought Instagram, the company added the ability to put filters on photos.
In January 2014, Facebook introduced “trending topics”, attempting to seize a portion of Twitter’s prowess in real-time updates for itself. Reports from mobile users suggest Twitter is even experimenting getting rid of its trademark “@-reply”, in favour of a Facebook-style mentions feature, while Facebook itself recent launched a “Mentions” app, bringing Twitter-style replies to Facebook.
Its latest acquisition, of French image search firm Madbits, points to far more intelligent interpretation and contextualisation of images, which could give it more power to try and compete with Facebook’s powerful sharing currency of photos.
Yesterday, Twitter was doomed. Today, it’s reborn from the ashes. But none of that changes that tomorrow, it’s going to be more like Facebook than ever. The great convergence of the social networks is upon us.
One tiny new app takes on social networking’s impossible noise overload problem
Carmel DeAmicis
One of the biggest problems as social networking has gotten to scale is the “social” part. No amount of code can describe the nuances of people’s relationships, and nothing that companies have thrown at the wall to solve that problem – lists, algorithms, circles – has stuck.
And when many in tech are in doubt, they just drop another app.
That’s the general trend that has led to new iOS app Beehive. The premise is simple: You can connect your Facebook, Instagram, and Twitter accounts and select six users from each to be in your “beehive.”
The app pulls your chosen users’ updates into a standardized feed that is your very own curated selection of favorite social updates. It’s an attempt to stymie the information overflow that is today’s social networking world, where it isn’t out of the ordinary to have thousands of “friends” and people you follow.
Of course, it’s a problem that companies ranging from Google to Facebook have tried to solve before. After all, the big initial draw of Google+ was its easy way to sort new friends into “circles” so you could share different updates with different types of people. Too bad it turned out no one wanted to use Google+ or deal with the cognitive overload of sorting friends.
Facebook, hearing the clamoring of the masses, soon followed suit with its “smart list” functions, which sort some of your friends into acquaintances, family, and coworkers. “Lists” got a lot of fanfare when it first launched, but it has since been shuttled off into the recesses of the Facebook profile, a button that’s challenging to find and even harder to use, and a feature that’s not even offered on the mobile app anymore.
Once upon a time Facebook promised that its newsfeed algorithm would solve the overwhelming updates issue, automatically analyzing the importance of certain user relationships and surfacing the content of the most significant friends. But with changes to the newsfeed occurring all the time, Facebook appears to have deprioritized that feature in favor of focusing on content articles. Facebook is still the main dumping ground where many people go to update their loved – and less loved – ones, and anyone using it for that needs a way to filter out the noise.
Whether Beehive is the app that’s going to do that for people remains to be seen. Out the outset, it seems unlikely. For one thing, the founder Jack Kendall is a first time app creator based far away from any sources of venture capital or tech networking – near Birmingham, UK. For another, Beehive gets caught in the same trap Google Plus faced with circles. People don’t want to spend mental energy sorting through their list of Facebook friends, Twitter followees, and Instagram users to pick the most important ones.
Beehive would do better with an algorithmic approach that automatically generated the user’s closest friends’ feeds. A long-ago Beehive competitor, Katango, managed to build such technology back in 2011. It was geared for finding top Facebook friends then, but Google soon snapped up the company and integrated the Katango team into Google+.
Kendall doesn’t think the algorithm is the solution. “If Facebook can’t do this with their algorithm, I doubt a smaller could, especially because Facebook has access to more data,” Kendall said Wednesday in an interview with Gigaom. “I would use that if it came along, but it’s not here.”
Beehive may not be the app to solve this particular problem, but perhaps it’s a predecessor to one that does. Like Kendall said: I’d use it.
Britain has ambitious plan for driverless cars, but roadblocks remain
CHRISTINE MAI-DUC @cmaiduc
Britain has announced a plan to fast-track driverless cars, meaning self-driving cars could hit public roads by early 2015.
It is the first sovereign state to make such a large-scale and public commitment to testing the cars, experts said.
Rolling without a driver in the Nissan Leaf
It’s every driver’s nightmare: A pedestrian jumps into the road. But there’s no driver here to panic.
“It’s an early statement by a national government that this is a policy priority,” said Bryant Walker Smith, an associate law professor at the University of South Carolina who studies the legal implications of driverless cars. “I wouldn’t say we’ve seen a similar announcement, say, by a U.S. federal agency.”
The British government is also promising to review current driving laws to better accommodate driverless car technology, but the country might still have some legal obstacles to tackle.
For one, the 1968 U.N. Vienna Convention on Road Traffic requires that every moving vehicle have a driver, and that the driver must always be in control of a car while it’s moving.
The treaty has been ratified by more than 70 countries, including the U.K. and many European countries, which use it as the basis for their driving laws. Some European leaders view the 46-year-old treaty as an obstacle to legalizing driverless vehicles, Smith said, and have been trying to change it for years.
But key nations agreed earlier this year to amend the treaty, and the change will probably to go into effect sometime next year.
cComments
Driverless cars will ultimately hooked up to a central government computer. Government will then be able to control where people travel. Those computers could stop and start cars. Criminals won’t have any means of escape. Although, everyone will also be under the watchful eyes by…
Still, Smith said, complex issues such as licensing, liability and insurance for driverless cars haven’t been worked out.
Officials in Britain said their review will look at those issues and will publish its results at the end of this year.
Some other governments have been supporting driverless car research: Japan has done testing of automated “platoons” of trucks, which travel in a convoy with the aim of reducing drag and CO2 emissions and improving highway traffic.
And the European Union helped sponsor a demonstration involving low-speed, driverless shuttles that ferried passengers at London Heathrow Airport and in cities such as Rome and La Rochelle, France.
