Best Buy sees the future and it is not limiting itself as an electronic retailer. Acquiring Napster allows it to diversify into web based applications. "The acquisition, set to close in the fourth quarter, includes Napster's 700,000 digital entertainment subscribers, Web-based customer-service platform and mobile capabilities." In general, consumer electronic companies have had a hard time staying in business. As electronic prices fall, it becomes harder and harder to grow sales revenue. Watch how the price of TV sets have decreased. And while new products emerge, it takes more sales to make up for lower prices. If a 40" TV cost $500 a year ago, today it costs $400. The list is long with defunct electronic stores: The Wiz, The Good Guys, Silos, Highland Appliances, Crazy Eddie, Comp USA, Lechmere, and many others.
While Napster may not be the ideal acquisition, strategically it seems right. Best Buy and others need diversification to offset equipment sales. It is about the content on those machines and Best Buy could use this acquisition to build a valuable synergy. Buy a mp3 player from Best Buy and get a unique deal from Napster. Free downloads to Best Buy customers. Build loyalty, build a separate advertising model; it could be a winning formula.
