Robert Stephens with Shane Mac

Alright, hey everyone. I have Robert Stevens here today. He is the founder of Geek Squad, and I just found out that he actually acquired Best Buy. And so he acquired Best Buy, he has recently left, and so I wanted to thank you for coming here today.

Absolutely, happy to be here.

So I want to ask you, you seem very, very passionate about the online to offline worlds. And how they're colliding right now. And I'm very interested in the space as well, and so I want to ask you, like, where do you see offline going? How is it affected by the online world? How are they coming together, and what trends do you see, you know, happening in the next, you know, 1, 5, 10 years even?

Well, you know, I always say the best way to predict the future is to read history and study the past. So let's go back to, you know, when I was 8 years old, 1977. You get Star Wars comes out. You also get the first Apple I computer and then the Apple II. You get the microprocessors in the '70s which lead to the personal computer revolution of the '80s. I thought that was the best time to be alive. Then I went to college in 1990 and I saw the web for the first time and realized it's about network of computers. Fast forward 10 years to 2000 and we get social media. What's social networking? It's not about the computers talking to each other, it's about people talking to each other. Then in 2012, we've got smartphone penetration really hits a tipping point. More people are online on their mobile phones than they are on a desktop. Even Facebook is starting to look a little dated with a desktop-based thing. They don't even have a really true high-performance native iOS app. We're about to enter the biggest era, 1,000 times bigger than ever before, and that is mobile. And what a mobile phone really is, is a mobile sensor. So I've been trying to think about what's the biggest trend of the next decade. And for me, it is mobile sensors. First in smartphones, but a lot of people ask me what's the coolest thing I saw at CES this last January. And CES is really the last place to see anything interesting because there's nothing there that hasn't been blogged about 1,000 times. But I had to be there for Best Buy. And I went in the back booth. There's a whole industry show that's not open to the public. And I saw Broadcom. Broadcom makes the Wi-Fi chips for iPhones, iPads, your wireless router, your cable TV box. They do it all. They showed me a $4 Wi-Fi chip. When Wi-Fi chips get to be $4 or below, all bets are off. What this means now is you're going to be able to bring almost anything that's offline online. And we're going to look back at this time and realize that this is when the internet punched its way into the physical world. You're seeing it with Uber. Uber is a system for publishing excess transportation capacity. It matches consumer sensors with driver sensors. They've got the— both of them have phones on. You're with ZARLI. ZARLI really is about publishing excess human capacity and matching that with consumer demand. OpenTable is a system for publishing access to tables. We're about to enter just a massive, 10,000 times bigger growth in the next decade. That's one of the reasons why I left. I mean, Geek Squad just turned 18 years old. I've had a blast, but you do anything for 18 years, I mean, damn, that's a long time. Then I lasted at Best Buy 10 years. I've never worked for a large company. Now I've done it. I'm ready to go start something new. I think this is the area. That is going to be the biggest business trend of the next decade, if not the next 2 decades.

So you talk a lot about resource utilization, right? That's kind of the key to it, is matching the demand with the resource. You talked to me one time, you founded Geek Squad, which is kind of built on this model, yet you were 18 years ago now at this point, right? How often were Geek Squad people idle?

It's been pretty constant because it's been about 65% utilization, between 55 and 65. So a third of the time— this is after subtracting vacations, lunch breaks, sick days, stuff like that. So there's a 30%, and my guess is that seems to be some kind of like a natural rule or natural law that's probably present in most systems, an average of 30 to 50% inefficiency. I mean, I think we all know, I mean, your car sits idle 97% of the time. I bet these Lincoln Town Cars before Uber came along and taxis, how many taxis in the world are sitting idle? I bet more than half at any one time, even perhaps in New York. So I think there's a number of implications this has. It's going to compress utilization, but that's also going to compress wages. It's going to create some very complicated social issues.

That's what I would ask. I want to dive in there a little bit. It seems like when you create these new markets, which are basically tapping into this in the mobile world, where someone has a sensor on both sides, that you're basically commoditizing all of the services. And they're kind of like building this flat, all supplies the same, uh, one-click type thing where it's almost like commoditizing humans, which I mean, you guys could say the Industrial Revolution did it in a way as well, and it's just happening in different verticals and different markets. But like, how— what social implications do you think this has? And what, what industries and labor is it going to disrupt, or is it actually going to be beneficial to have a new kind of micro microeconomy, micro jobs, micro labor type workforce that isn't, you know, persons with a career, 30 years there, and etc.

I've been studying this for a long time. 10 years ago, when I was dating Best Buy and I was trying to anticipate how would I beat Geek Squad, I mean, every business, I believe, has what is called its evil twin, its perfect other self, a better pricing model, a better UI, a better leadership program, everything. I owned all my employees. I own them. I think if it touches a customer, you got to own it. You can't outsource it. I can't outsource the person that's going to come into your home and touch your private files. I want them uniformed in a white crisp shirt with a black clip-on tie and a geek mobile and we own the cars and all that kind of stuff. So, there's two excess capacity markets that will emerge. One is what I call a closed circuit model and that will be, you know, companies who own their own labor inventory like Geek Squad. It doesn't outsource at all. Then there's the commodity market. So, the commoditization first will happen where there is less differentiation. So, hey, bring me anybody who's got a pizza. Every pizza place that's listed on that exchange is going to just be a commodity. You know, do you have cheese, do you have sauce, and do you have pepperoni? Versus there's a few pizza places that we all know that are our favorite and they're unique and they compete against themselves. And so you'll have this, you know, companies like Best Buy could publish their own excess capacity to their own sales force and therefore utilize that and escape some of the market effects. There's that part of it. But there will be— I mean, Uber's going to have a problem. How do you think that the Lincoln Town Car drivers feel about the announcement last night that they're going to launch a hybrid fleet at 30% discount? They can't be happy. They've all— I mean, I've heard the story. They bragged a few weeks ago that some of the drivers own up to 19 cars. These guys are leveraged. They've got loans out on the cars, and all of a sudden Uber says, hey, Guess what? We're going to flood the market with cheap taxis now, but they're hybrids. The high-end Lincoln car drivers have less differentiation. That's ultimately going to create a problem. But it's just like Apple. Companies first compete against themselves. When you cease to compete against yourself on how good you could be, then you compete against your evil twin, which is the model of you There's always going to be some— if you're making money and you're doing well, you're going to attract other entrepreneurs who will try and steal your lunch money for half price and come in with lower margin. And that's what's going to happen with the taxis. The taxis will be good enough, and I'll probably choose that over a black Lincoln Town Car. And there's limited options to what they can do. This is why Ron Johnson had trouble at JCPenney, you know, after leaving Apple. JCPenney doesn't make everything itself like Apple does, so Apple can fight off commoditization more. But JCPenney can't just do some, we're eliminating sales, because if they had made, started making all their own clothes that you couldn't buy anywhere else, they wouldn't have had the same problem. So I think we're gonna see this in a whole series of places. It'll probably play itself out, and it'll shift from industry to industry.

So let's, if we can focus, use Uber as an example, which I think is a great example. Because, you know, if you're in San Francisco, which they're only in the major metropolitan markets, and the new guys coming after them, which you would say I think is the evil twin, would be that Lyft launched last week, and Sidecar launched last week, and they're peer-to-peer services of the same Uber. So what wins that market? Is it that you own the cars eventually, so the experience is so good that you go with one? Is it that the commoditized specific use case of that doesn't matter as much as long as it gets you from point A to point B, so price always wins? Or is it like— is it speed mixed with price? Or does it come down to like, it's just going to be a race to the bottom?

It doesn't have to be, but it's usually about a blend. I think the fashion industry is one of the best areas to study. Let's look at Ralph Lauren. At the upper middle class, he's got Polo brand, which is basically an aspirational upper middle class, slightly accessible to the middle class. It's in department stores like Macy's, stuff like that. But then he has Lauren, which is the high-end women's line. Then he has RL and Purple Label, the bespoke, the handmade $10,000 a suit label. Which also gives, by the way, cachet to his middle-class brand of Polo. But then he also has Club Monaco. Most people don't know that Ralph Lauren owns Club Monaco, which is his version of Banana Republic, you could say. So stratifying brands. MINI is the 1 Series BMW, and it's brilliant actually because it gives people a car, like if they're in high school or college, you're going to get your MINI tuned up in the BMW dealership, and you're eyeing that 3 Series when you get your MBA And when you make partner, you get the 5 and 7 Series. So I think these stratifications are smart. Unlike Volkswagen, which made a big mistake, it went with the Touareg, or more, more, more worse, they did the Phaeton, which was their high end. Volkswagen, Porsche, and Audi are all the same company. And that's the way it should be, completely separate brands. If you want high-end sports car, you go Porsche. If you want refined luxury, and engineering, you go Audi. If you want the people's car, I mean, that's the actual German name, Volkswagen. So I think that's what Uber actually, if I were them, I would— Uber, first of all, is a great word because it doesn't mean anything like Google. I mean, it does mean "over," but it's a word that can become a verb. They're going to have to be very careful because you almost want to create separate brands for your different pricing tiers. That's how I see that happening. Like, if I were to create a derivative brand for Geek Squad, I would call it Oval because that's the shape of the logo, but it's kind of like it's a completely different word. This is what we're going to begin to see because if the technology swims upstream and allows anybody to have the sophistication of an Uber, of real-time dispatch, it's going to put pressure on them to continually— like, Apple's got to come up with the Retina and MacBook Pro to keep laptops alive. I actually returned mine because the MacBook Air is good enough. And this tension is going to play itself out in every product and service.

So, all right, in the markets we're talking about for disruption then, are there certain areas or verticals that you think are more ripe for disruption than others? Or where would you place your bets on, you know, you're coming out here to Silicon Valley, you're probably not going to sit at home because you'll be bored, you know, what areas excite you the most? About the kind of online to offline and resource allocation area?

Well, I put a blog post up on my last day at Best Buy, RobertStephens.com, and I basically identified 4 themes that work in my life: service, technology, culture, and brands. I actually would argue everybody's in the service business. When everything's made in China, again, everybody's is giving experiences. That's one of my specialties, is just detecting where even the most mundane businesses— that's really my point with Geek Squad— is if you can do it with computer repair, you can do it with plumbing or drywall contracting or car washes or airlines. There's millions of details, and if you pay attention to those, you fight off the battle for price, because price is really only what a customer complains about when you've let everything else go to shit. Then there's technology. I mean, think of all the businesses during the dot-com bust 10 years ago that failed. Many of them failed just because they were ahead of their time, like grocery delivery. And now Uber, you couldn't have done until the smartphone. So I'm looking at businesses going, who's ripe for reinvention with a service attitude and experience, um, which would command a premium price? On top of that, who is underutilizing technology to differentiate against their competition and squeeze, and not only increase quality but decrease cost. But more importantly too, you've got to hire. If you're in the service business, who you hire determines what that experience is. You're really hiring for the customer experience. And then ultimately if you do those other 3 things, you end up with a brand, and a brand can actually last hundreds of years on the goodwill. Rolls-Royce hasn't actually really innovated in the automobile world since 1915. They really haven't. I mean, they're luxurious, they spend a lot of money, but why were they number one in the beginning? Because they have the quietest engine. That's what their logo is. Their logo is a fairy, a silver fairy with wings. That's on the hood ornament. And it was the idea that their engines were so quiet going down the street compared to everybody else. That was 100 years ago, and yet they're still living off of that. You know, Hermès and their silk scarves. Actually, at some point you get to something where— like Louis Vuitton and their luggage, if they just take care of the brand, they'll last another 1,000 years actually. The longer they stay in business, the more value they have and credibility. That's kind of what I want to do. I'm either going to build companies that couldn't exist 5 years ago because mobile didn't exist and these other things, or I'm going to buy companies that are undervalued like Warren Buffett does. But rejuvenate them, restore them to the founder's vision, implement a much more rigorous service experience, use technology to increase quality and decrease cost. Most people just use it to decrease cost and they miss the big boat and they end up competing on price. Lastly, if you believe that everybody is going to be in this excess capacity marketplace and while there will be disruption, I think there's a whole third-party regime that's going to emerge. Let's look at Zarli. Uh, Zarli, or people renting out their homes through Airbnb, they need services to help them offer services. I hear people complaining all the time, oh, I'm selling my home in Italy because I can't find anybody to clean it. Uh, if you're doing a lot of Airbnb, I'd like to market to all those people and say I've got another network of people who will clean your apartment in between stays and I'll help you calculate the price. Third-party analytics services. If you keep selling the same excess capacity and you're not pricing it right, you're going to go out of business. Actually, OpenTable, they should be getting some kind of analytics going, what's the relationship between the time of day people make a reservation and stick with it and how much they spend? Uber, I'd love to sell fuel card management programs to all those drivers. If every car is going to be part of that, I'd love to sell them auto maintenance and pool them together and get them a special rate. So I'm also looking not only at that business but ancillary services, assuming that all of those areas will grow. And so, um, that's kind of my rough thesis right now.

Awesome. So I want to go a little direction one way. This will be the last question. I think we've tapped into a lot of awesome stuff around the online to offline markets and what's coming. But you talked about brand and you used the brand Rolls-Royce, which I love as a brand. But is that still true in today? Can you build a brand and not innovate for 100 years and let your brand take you to the next level if you have a good enough brand? Like, I think about— I mean, honestly, this is probably a Maybe not even you can answer this, but like, I think about Best Buy. I think they have an amazing brand. Like, I think their brand is actually pretty good. My mom knows it, everyone I know knows it, they all think about it. And will the brand be able to get them to the next level of innovation? Or like, in tech world especially, it seems like brand matters, yet matters less. I mean, I'm a huge brand guy. I love brand and I think brand matters a ton. I'm just saying, can it get you through if you don't innovate?

Brand is like the icing on a cake. I mean, it doesn't— it reflects the shape of the underlying structure. It's held up by the foundations. It in itself isn't the only flavor, but it adds sweetness. It is the thing that people see. They don't think about the layers of cake. They think of the colors and the design. It's all these things. Brands are elusive and that's part of what gives them value because they're not subject to manipulation. There's actually a theory. I just found it in Wikipedia. It's the evolutionary basis for spite and consumer fickleness. It's called frequency-dependent— what's it called? Frequency-dependent selection, meaning that if a yellow butterfly— yellow wings on a butterfly is perceived by the female to be an attractive trait, The colony, the species will evolve toward yellow wings to be attractive, but at some point it will hit a tipping point at which it ceases to differentiate and suddenly the color will shift to a blue. If a nightclub is very hot, it will shift, you know, and cease to be popular, you know, just like the market and stuff like that. So, the minute that a trait becomes valuable and is seen by other competitors as valuable and they adopt that, they actually at some point hit a tipping point in which it ceased to have value. Brands are sort of like a universal UI, a user interface for human psychology. The brain is wired to ignore what it sees every day. It's trained because we evolved on the plains of Africa to look for a shaking bush that might have a predator that might jump out at us. So we're actually— our eyes and our brains are trained to only pay attention to that which changes frequently. Things that don't change, we take for granted. It's more efficient. So brands that don't change will be ignored. But any brand that at any time in culture attains some kind of notoriety, there's some— what Joseph Campbell calls the archetype, the universal theme at work in human psychology. Jesus, Buddha, and Luke Skywalker are all the same person. The lone person on the journey really battling themself on a quest for truth. These universal themes are where the power of a brand really comes from. Ralph Lauren is about American royalty, the aspiration, because he's really just some poor Jewish kid from the Bronx who rose up. That's the real story behind that. There's no such thing as American royalty, yet that's what he's portraying, this East Coast you know, polo playing, horse riding. It's the thing that we aspire to. So brands have value, and even decades and generations after they've died, I do believe it is possible. If it was true at any one time, some future generation could dust off an old forgotten-about brand, and by proving its provenance, that in 1867 this horse saddle company started out making leather goods, and they made leather harnesses for horses, and now Hermès, which is that same company, makes leather bags and now silk scarves. Hermès isn't about the silk, it isn't about the leather. Hermès is about some special aesthetic. And in that, I believe brands will always be relevant, they will always be useful, because when anybody makes the perfect cake, some guy walks up with better frosting and it certainly doesn't hurt. It's not the only thing. But the paradox is that If you just build a brand with nothing underneath it, it'll collapse. It won't have value and you can bastardize it. One brand like Rolls-Royce could go into disrepute for decades. Bugatti was gone for a long, long time, but because they designed that one 1938 Bugatti Type 7 so beautifully, that really for all time, as long as there are four wheels in an automobile, somebody could come back. And restore that original vision, and it'll never die out because it's really part of a universal theme, so it's kind of timeless.

Hey Robert, I just want to say thanks. This has been an amazing interview. I think it hit on a lot of the things that I think about a lot, and it's useful to hear it from you. So everyone, Robert Stevens, the founder of Geek Squad, the former CTO of Best Buy, and it's an honor to have you on this today.

I'll be a neighbor of yours in a few weeks.

Hey, I can't wait.

Okay, take care.