The U.S.’s biggest electronics retailer knows the hearts and wallets of regular folks

For nearly two years, Tandy Corporation has been at the forefront of multimedia computing. As a partner with Microsoft in developing the Multimedia PC (MPC) specification, Tandy has provided the hardware, and a long promotional and distribution arm, to help promote the MPC.

But as you might suspect from the largest consumer electronics manufacturer and retailer in the United States, Tandy’s interest in multimedia does not stop with the MPC. Rumors of a consumer “player” called Gryphon have been rippling through the industry for many months, and after a recent visit to Tandy’s headquarters in Fort Worth, TX, it is abundantly clear that the company intends to maintain its reputation as a player in every active electronics product market — those existing as well as those yet to be created.

A BLESSING OR A CURSE?

Charles Tandy revived nine Boston-based, bankrupt “electronic hardware stores” called Radio Shack in 1963, turning them into a one-stop shop for discount consumer electronics components such as transistors, circuit breakers and hobbyist kits. Tandy subsequently opened one new store a day across the U.S. for nine years. The quality wasn’t the best, the packaging wasn’t elegant, but the price was right.

And this is Tandy’s legacy to this day. It is a proven leader at making new technology products accessible to the average consumer, but bringing down cost by any significant factor always means bringing down the quality level a bit, too. In any event, Tandy is an enormously successful retail company, with a distribution system that is second to none. It has a vast capacity for manufacturing its own or other vendors’ products (for example, the new Digital Equipment laptop computer is a Tandy-made product).

And it has nothing but incentive to be a contender in the coming market for personal information appliances and multimedia hardware that will bridge the span between two markets it already addresses in spades: personal computers and consumer electronics devices.

COVERING THE WATERFRONT ON CONSUMERS AND ELECTRONICS

Just so you know who you’re dealing with, here’s a list of some companies or divisions that Tandy operates:

• Radio Shack (7,000-plus retail outlets selling consumer electronics devices from stereo equipment to transistors).
• Computer City (second largest computer seller, by sales volume and number of stores, in the U.S., selling Tandy PCs, Apple, IBM and Compaq; one hundred outlets to be open by 1994).
• Grid Systems (makers of laptops and pen-based computers that support both of the current competitive pen-based operating systems).
• Victor Technologies Group (a major European-based computer vendor).
• Tandy Name Brand Retail Group (operates a number of retail chains that focus on early adopter-gadgeteers — in this category, Tandy claims its McDuff’s and VideoConcepts chains compete handily with Circuit City in sales of large-screen TVs, for example).

Not such a risky business. This breadth of retail coverage assures Tandy of being able to capitalize on just about anything happening in the retail market. If early adopters are buying expensive, Sony-brand equipment, the Name Brand Retail Group makes money off that trend. If personal computers are coming down in price and the home market starts to blossom (as it is), then Computer City will reap the benefits — whether selling Tandys or Apples. When all the world wants a CB radio, as they seemed to in the ’70s, Tandy can put its Realistic brand on the shelves and sell millions of dollars’ worth until the fad burns itself out.

And best yet, Tandy’s vast numbers of retail outlets make it possible to cover the consumer waterfront with little financial risk. Lowell Duncan, Tandy’s corporate vice president of marketing, estimates that Tandy manufactures about half of what it sells. With the purchasing power of thousands of outlets, Tandy can buy or manufacture in volume and still sell in small numbers. For example, Tandy can buy 15,000 units of a new product and if it doesn’t catch on, Tandy needs only sell two per store to “empty the shelves.”

Amassing data on consumers and competitors. As the largest consumer electronics manufacturer and retailer in the United States, one of the largest computer retailers, and a direct marketer of computer equipment and services, Tandy has amassed vast amounts of data about the purchasing habits of the American public.

In fact, Tandy Information Services, an internal marketing resource, collects the sales information from almost 5,000 Radio Shack stores daily. That’s eight to ten million customer transactions per month. From this data, the company is able to break down trends and opportunities by any marketing segment it wishes.

These are likely to be very handy features in the new world of personal digital electronics. When no one seems to know what’s going on, as is true today, information is power. What better information to have at your fingertips than your very own, rock-solid mountain of consumer buying statistics? And Tandy can test-market a product at a significantly lower cost than its competitors who don’t have the good fortune of owning their distribution channels — not to mention the ability to track the sales of their products, which it also sells.

MPC: NOT AN END, BUT A BEGINNING

While Tandy has championed the MPC standard, and taken a very active leadership role in its future (Mike Grubbs, Tandy Electronics’ senior director of marketing, is chairman of the MPC Marketing Council), it has taken a sober and decidedly non-reactionary look at the future of the multimedia personal computer, especially in its stronghold, the home market.

Multimedia capabilities are the most obvious manifestation of the computer industry’s evolution. Like many (though not all) computer vendors, Tandy realizes that multimedia is not an end in itself. Just because a desktop computer can do multimedia does not mean that consumers will pay the $1,000-plus premium to buy one. In fact, they aren’t.

Even business markets have only bought MPC products when they could provide a solution. They have not agreed that the MPC is the new base-level specification for desktop computing. Educational markets have shown a somewhat better response, but MPC boxes are still not generating substantial revenue.

These facts have not proven surprising to Tandy. Despite its early and continuing commitment to the MPC, the company believes that the MPC is only one of a series of entirely new product categories that will be developed over the next five years, with new markets and channels to support them.

AND WHAT MIGHT THOSE NEW PRODUCTS BE?

The multimedia market, such as it is, has become a confusing mess of different product types, markets, users, tools, etc. There is no single target user; there is no single product that will answer everyone’s needs (although Philips continues to swear that there is). In fact, it is still unclear exactly why, if at all, consumers really “need” multimedia.

Grubbs says Tandy’s strategy for dealing with this confusion is to develop specialized products for what will be an extremely segmented market. He envisions whole families of products. Instead of a line of three or four computers, there would be 20 or 30 devices –each with specialized functions and features, but coming from the same “family.”

These products would range from personal information devices to home appliances to personal computers — all available from the same (Tandy-owned) store, drawing on the same development tools and development paradigms. The particular applications and functions would depend on the market for which each device was designed.

No comment on Gryphon. An obvious target for a company like Tandy would be a home multimedia player, à la cd-i or CDTV, based on industry-standard hardware and software — in fact, this description supposedly defines Tandy’s Gryphon product. But Grubbs and the entire Tandy team steadfastly refused to comment on the project. However, let’s extrapolate a bit.

Creating a broad product line such as the one Grubbs describes will require many relationships with other companies. As we reported in last month’s Digital Media, Microsoft is creating custom subsets of its Windows operating environment for use in all of the product areas mentioned above. Given Tandy’s close working relationship with Microsoft on the MPC, and Microsoft’s clearly stated intention to be in the consumer market, is it likely that Tandy is working with Microsoft (or some other equally powerful partner) on a home player? Take a guess.

In addition, Microsoft has been working with the cable television industry — CableLabs in particular (see p. 15) — to create a new interface for cable TV. And, it would seem that the cable infrastructure is one logical avenue through which digital media may travel to the home. It would not be surprising to hear an announcement from Microsoft and Tandy that they are developing a device to interface intelligently with incoming video signals, either from broadcast or cable TV.

THE NEW MARKETS

Tandy began its examination of these new markets by dividing up the large population groups into recognizable segments (see illustration).

According to Grubbs, the high end of the market has been filled by professional workstations and personal computers, with or without multimedia capabilities. The “home appliance” and “mass consumer” markets haven’t been satisfied with the proper platforms, and this is where Tandy is focusing its development efforts.

Understanding the home computer market. Tandy pretty much owns the home and home/office computer markets. Company representatives estimate that half of the 23 percent of American homes that have a computer own a Tandy computer. (These numbers are specifically directed at home computers, not necessarily those purchased for home/office use. Tandy’s home/office computers, while not holding such a lock on the market, still have an impressive installed base.)

Tandy spent more than five years studying how computers are used in the home and how to create products for that market. In that time, Tandy developed the DeskMate interface, which is shipped with most Tandy computers. DeskMate provides 32 of the most popular and widely used computing tools for the home — word processors, budgeting software, etc. Therefore, no matter what the customer’s interests, there is a good chance that DeskMate filled at least one of them at no extra cost.

But as computing devices move toward the mass consumer market (to the left on above chart), Tandy believes that the needs and desires of the target customer will begin to diverge. There will become no single “typical” user; each has in mind his or her own concept about what a new device is good for.

A dramatic drop in tolerance. In addition, users’ tolerance for learning complex operations drops dramatically, as does their tolerance for high prices. Thus the new class of products must be simple and inexpensive.

Although no one at Tandy would describe in detail the new home appliances, Grubbs makes it clear that they will be built upon these ideas. They will be specialized, simplified tools, with the internal power of a computer and the simple interface of a good consumer electronics device — “simpler than a VCR,” in the words of Grubbs.

For example, they would have various selected basic functions and tools built in (à la DeskMate). There would be no need, or capability, to add applications or upgrade the hardware — significantly reducing the cost of building the machine and making it easier to learn and use. In addition, Tandy can leverage its experience with the MPC by adding selected multimedia capabilities to these appliances if needed.

ADDING CONTENT TO THE MIX

Only content — titles — would need to be added to the picture. And content could be accessed from any of the current or arriving delivery channels, including CD-ROM, cable or satellite.

The truly mass consumer products (on the far left of the chart) need to address an even more diverse crowd. Therefore, these devices would be even more specialized and inexpensive as more applications and categories of users are discovered.

These are the personal digital assistants, or PDAs (in Apple’s lingo, now adopted by Microsoft as well) — single- or dedicated-function devices that answer specific market demands. Both product lines would be part of the same product “family,” sharing similar core technologies.

As do many forward thinkers in the digital media world, Tandy believes that where utility (spreadsheets and word processors) once drove sales of personal computers, content will drive the sale of the new consumer/computer devices.

BRINGING IT HOME TO CONSUMERS

Tandy has high hopes for the future of digital media-based products. Grubbs says that Tandy is aiming for more than 25 percent penetration of American homes with its new consumer devices. To put that number in perspective, that’s a higher market penetration than Nintendo has today.

In many ways, Tandy is Japanese in its approach to the consumer electronics market. The company has proven expert in taking a new technology products and making it cheap enough for the average middle-class, non-yuppie consumer — i.e., someone who can’t buy Sony components or Apple computers — to bring home. Remember that Tandy manufactured the first laptop computer, the Model 100, and was one of the first producers and marketers of cellular phones, and is currently co-developing the Digital Compact Cassette (dcc) format with Philips and Matsushita. It has also developed the Thor writable cd format, the development of which was stalled due to the rush to bring dcc to market.

It doesn’t matter if they’re wrong. Tandy intends to leverage its prowess in consumer merchandising to make home multimedia and information products a hit. Its strategy is to put the new products in front of people — to confront them with the possibilities. Advertisements and talk are one thing, but with thousands of retail outlets, getting a consumer to sit down with a device and use it is a much easier task for Tandy than for many other vendors with the same goal.

What’s most interesting about Tandy’s strategy is that it doesn’t much matter if its initial approaches are wrong. If its own products don’t sell, it will also be selling its competitors’ products. If everyone’s products don’t sell — well, with its sweeping retail scope, it’s doubtful that Tandy will be betting the entire farm on home multimedia and information products. And — as mentioned earlier — it can pull the plug on a product line very quickly and only have to sell a couple of units per store.

Unlike companies such as Microsoft and Apple, which are topping out in the maturing personal computer business, Tandy still has plenty of other retail revenue streams to draw from until consumer desire catches up with technology. With a low-risk strategy like this, it’s hard to see how Tandy can lose.

A problem with quality. One serious problem that Tandy will need to face, however, is the need for better quality in its hardware. A faulty 25-cent light bulb or even a B-grade transistor radio can be forgiven, but neither customers nor technology is very forgiving on the high end.

The CD-ROM drives currently used by Tandy in its MPC machines and upgrade kits, for example, are notoriously unreliable. Some major software developers believe that the drives do not perform at MPC-standard rates, and have warned their customers that their products will not run on Tandy CD-ROM drives. Such problems work at cross-purposes to everything Tandy wants to accomplish. The company’s desire to price aggressively must not get in the way of a working product.

David Baron, Denise Caruso

TANDY’S INFORMATION FACTORY: AN INTERIM SOLUTION FOR CREATING DIGITAL MEDIA

At the new Tandy Technology Center, the heart of its R&D operations in Fort Worth, TX, Tandy is using a factory model for creating digital material. Photographs, from the equivalent of a conveyor belt, are digitized by the thousands by technicians specifically trained for that task. In another area, musicians and actors are available for recording whatever audio may be called for. Animators await orders.

Tandy hopes the multimedia factory will reduce the cost of media creation by an order of magnitude. As this library, or pool, of digital information is developed, the authors can call upon whichever elements are necessary for the creation of content.

Creating TandyVision. Tandy’s interactive multimedia kiosk, TandyVision, is being created at the factory. Thousands of catalog images and product descriptions are being digitized and included in a point-of-sale kiosk that will be placed in every Radio Shack in the country. Tandy is considering making its factory available to developers, or at least sharing with the developer community their plans for building such an operation.

Full-time producers of multimedia titles or large companies such as Tandy, which are trying to jumpstart a market, have no trouble justifying the purchase of production equipment. But what about the guy who has a hot content idea but no equipment or experience?

Starting on April 23, an outfit called Graphix Zone is opening a Creator Center — a studio containing a range of production equipment and staffed with experienced consultants — in Irvine, CA. There, would-be producers will be able to rent studio time for $40-50 per hour. Graphix Zone will also conduct day-long training sessions for would-be producers. If the first Center proves popular, Graphix Zone will open others around the nation.

GOOD IDEA, BUT NOT NEW

It’s a good idea. Creative specialists, like graphic designers, can easily bill studio time back to the client (with a markup along the way) but they cannot readily bill for the use of equipment that they own. Clients expect that to be part of the basic fee; the result is a real disincentive to investment.

It is not, however, a new idea. Back in 1986, Lightspeed had a very fancy and expensive system for graphic and package design. But few designers bought it because there was no obvious way to recover the investment. (“Better artistic productivity” didn’t cut much ice with the bankers.) So Lightspeed opened a series of Access Studios, with equipment and staff and training sessions.

They did pretty well for a year or two. Then the desktop publishing revolution came along to put a design system on everybody’s desk and nobody needed Lightspeed or the Access Centers any more. We think the same phenomenon will happen in multimedia (and in fact may be in the process of happening with Digital F/X’s studio model — see Vol. 1, No. 4, p. 13). There is no good, cheap, universal desktop production machine — yet. Till there is, renting time in a studio is one way to solve the chicken-egg problem.

The ability to cut the cost of multimedia creation can only help to build a bigger multimedia market, and it will certainly prove invaluable to creative professionals who want to archive digital imagery and businesses that wish to move a giant step closer to the paperless multimedia office. Will it create a new market for consumer titles and devices too? That’s a little more dubious.

David Baron, Peter Dyson