The following is reposted with permission from The NPD Group Blog.
News last week that LeEco, a China-based TV, smartphone and media conglomerate, is acquiring Vizio provides a convenient milestone to offer some reflections on Vizio’s impact on the U.S. TV business.
We are not here to speculate about the future of Vizio, but rather post a retrospective of an underappreciated, truly disruptive company that changed one of the most important categories in consumer electronics.
Founded approximately 10 years ago by refugees from the smoldering wreck that the end game of Gateway had turned into, Vizio hit the TV market at the exact moment it was ripe for change and reinvention.
The founders of Vizio were not the only ones to see this at that time. In fact, Gateway, along with Dell, HP and other PC/IT-related companies, saw the upcoming shift from analog to digital broadcast, as well as the gathering tsunami of the flat-panel TV, as an opportunity to leverage the strengths of the IT model in standardized components. This foresight provided them with the ability to transform contract manufacturing and high-turn, low-margin retail selling into an adjacent high-revenue, high-profile industry.
Many of us in the industry (myself included) thought that the future of TV would be much like the PC, and companies like HP, Dell and Intel (with its LcOS silicon) would break the TV market. Who can forget the $2,999 42-inch plasma TV from Gateway that was one of the original disruptors in the TV market?
While Gateway failed to further capitalize on that initial success, and the rest of the IT companies also floundered in trying to become more like CE companies, Vizio’s founders were not deterred. They knew the fundamentals of how to break the market still made sense, but needed more focus and better execution to succeed.
Vizio’s success came from two different disruptive concepts. The first was leveraging the Asian supply chain to build a quality product at an affordable price, and exploiting that capability to create a unique distribution strategy. No one should ever underrate the distribution trick that Vizio pulled off at its founding: becoming a value brand at a price-focused value retailer (Walmart), and at the same time positioning themselves as a value brand at quality-focused retailers (Costco and Sam’s Club). This distribution Jedi mind trick is one of the best distribution strategies ever conceived, and has carried Vizio’s success all the way to the present day.
Using the rapidly expanding efficiencies of the Asian supply chain to create a good-enough product — just as the industry would be confronted with a reinvention of the concept of value and quality in a digital world — was both great timing and a masterful reading of the changes that flat panels and digital were about to wreak on the TV industry.
And that timing was their second disruptive activity: Being first to market when the market is about to change (and your competitors are mostly entrenched and comfortable businesses) is a classic way for an entrepreneur to break a business. TVs were going to change; Vizio was going to get there ahead of everyone else with a cost structure, a mindset and a distribution philosophy that was more flexible and executable than anyone else’s.
Vizio tried to bring these attributes to many other categories over the years and, for the most part, has either missed their opportunity or failed to deliver the right product. The cumulative impact of those misses likely led to the financial results that forced this sale. But no matter what happens in the future, the fact that very good TVs can be very affordable is directly attributable to the disruption and innovation that Vizio brought to the market many years ago.
VP/industry analyst Stephen Baker tracks the CE and tech businesses for The NPD Group, a leading market research firm.