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Speakeasys Partners a Best Buy for Electronics Retailer

One of the reasons Best Buy bought Speakeasy Inc. was for its 4,700 indirect channel partners. Indeed, the broadband service providers agent reach was a very important aspect of what Best Buy saw in Speakeasy, says Bruce Chatterley, Speakeasys president and CEO. To that end, executives want partners to know that their places are valued and secure; still, partners will need to get used to the idea that their traditional approaches to snagging SMB customers have been altered.



Best Buys David Hemler says the retailer bought Speakeasy in part for its channel partners.

David Hemler, vice president of Best Buy For Business, the B2B unit that will offer Speakeasys services to small companies, could not offer details regarding partner opportunities at press time. But he did say Best Buy For Business will give agents access to a range of products and services at discounted prices. Chatterley adds that Speakeasy now can send different opportunities installation work, for example to partners. We have all kinds of things like that we have yet to roll out, he says.

That ought to come as a relief to Speakeasys indirect channel, as the teaming of a consumer electronics retailer with a broadband services provider was unprecedented. The $97 million transaction, announced March 27, will close some time in May. Once that happens, Best Buy For Business will with Geek Squad, Speakeasy and its hardware and office supplies divisions be a one-stop shop for businesses of 50 people or fewer. Speakeasy will operate as a wholly owned, yet independent, subsidiary of Best Buy. It will remain in its Seattle headquarters with its management team and employee roster intact. There will be no layoffs, says Chatterley. We look at this as all about growth, he says.

One of the biggest benefits for Speakeasy is Best Buys ability to turn an obscure brand into a nationally recognized one. Thats what it did with Geek Squad, a company founded in Minneapolis, and thats what it intends to do with Speakeasy. Founded as one of the worlds first Internet cafés in 1994 by Mike Apgar (now chairman), Speakeasy quickly grew and eventually expanded into full-service national broadband services, its primary focus today. The company targets certain niches. Lawyers, accountants, media companies, restaurant chains, clothing and mattress retailers comprise Speakeasys core demographics. Speakeasy provides T1s, DSL, VoIP and managed services. Its more than 40,000 customers include tech-savvy, bandwidth-hungry consumers such as online gamers.

The Speakeasy name is renowned in telecom, says Hemler. People who know the company turn into very passionate, avid followers, he says. I liken them almost to the Apple of the connectivity space.



Speakeasys Bruce Chatterley expects to offer a range of opportunities to partners as a result of the Best Buy deal.

The problem, says Chatterley, is Speakeasy never had the budget for widespread advertising. Instead, its growth relied on word-of-mouth, a tactic that worked, but that only goes so far. Joining with Best Buy ups the ante. We can bring that brand-name recognition to the dance, if you will, as well as good national distribution, direct sales and retail sales, which will really help build [the Speakeasy] brand, says Hemler.

The Speakeasy pact does not mark Best Buys first foray into communications. The company already sells cellular, cable and VoIP plans, such as those from Ampd Mobile, Time Warner Cable and Vonage Holdings Corp. Speakeasys services will be available through 281 Best Buy stores, the Web and over the phone.

Speakeasys suppliers Covad Communications Group Inc. and BroadSoft Inc. say the deal is positive for the indirect channel. It validates the agent market and probably will get them excited, says Scott Wharton, vice president of marketing for BroadSoft. Speakeasy uses BroadSofts VoIP platform. When it comes to selling communications, he says, there are a lot of different ways to approach [customers].

Agents and service providers will have to reconsider how they talk with their business customers, Wharton adds. I think what Best Buy has identified is this gap where everyones competing on price and no ones really offering value and service, he says. This is a huge leap forward for the VoIP space and small business.

Lisa Graham, senior vice president of wholesale partner relationships for Covad, agrees. Covad serves as Speakeasys wholesale broadband supplier. You want to be wherever the SMB buys and whoever cracks the code on selling services in retail is going to have a pretty big win and distribution channel, Graham says. She says some partners probably will complain about the Best Buy-Speakeasy combination; but as distribution strategies evolve, so must agents. You have to be everywhere SMBs buy. And thats retail.

For sure, some partners and analysts are wary. One Speakeasy agent, in a Web group, wrote: Time to find another partner, I really dont care to be associated with Best Buy in any way. This move made Speakeasy a competitor to myself and 90 percent of their partners.

Similarly, Current Analysis Brian Washburn fears Speakeasys service quality will degrade. Speakeasy, he says, has a premium services reputation that will be at odds with Best Buys budget-conscious buyers. The majority of Speakeasys customers are still power users, not small businesses, and the retailer ignores this fact at its own peril.

But most industry insiders and analysts see Best Buys acquisition of Speakeasy as a plus.

Yes, the purchase of a telecom company by an outlet better known for selling flat-panel TVs strikes them as odd. I havent seen someone [like Best Buy] go out there and decide to go whole hog and buy a service provider, says Will Stofega, research manager of VoIP services for IDC. Still, he says, the union makes sense many technology companies partner to offer managed services. Why not a retailer? If Best Buy pulls off the strategy, its competitors will execute copycat deals. The bottom line is were seeing new and different players getting into the telephony business, Stofega says. How we consume communications services is changing.


Think Inside the Big Box

So how did a broadband provider hook up with an electronics retailer? It happened after Speakeasy last year decided to send out feelers for a buyer. It was not out of any sense of threat to our business, says President and CEO Bruce Chatterley. Rather, because M&A was rampant in telecom, executives thought a merger of their own might keep fueling the companys impressive growth. Accordingly, Speakeasy met with its investor, Blue Beacon Capital LLC, to brainstorm potential partners.

The usual suspects other providers came to mind until, late one night on an airplane, Gerry DeHaven, Blue Beacons managing director, wondered whether office supply chains or electronics retailers would make good matches. We thought we might find more value, frankly, with a company that was looking for a platform to jump into this space, he says.

Speakeasy liked the idea, so Blue Beacon made the rounds. It approached Circuit City, Staples, OfficeMax, Office Depot and Best Buy. I guess some luck was involved, DeHaven says. The Best Buy folks were in the process of cultivating a new, nonretail strategy and Speakeasy fit really well.

Links

Ampd Mobile www.getampd.com
Best Buy www.bestbuy.com
Blue Beacon Capital LLC www.bluebeaconcapital.com
BroadSoft Inc. www.broadsoft.com
Covad Communications Group Inc. www.covad.com
Current Analysis www.currentanalysis.com
IDC www.idc.com
Speakeasy Inc. www.speakeasy.net
Time Warner Cable www.timewarnercable.com 
Vonage Holdings Corp. www.vonage.com


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