Free open source software is making slow in-roads into the world of big box retail. This article is the first of a series of two Mad Penguin™ articles which take a detailed look inside the world of retail as Tux is experiencing it. Today, in Section One Mad Penguin™ goes shopping to see what can be seen in four retail big box stores in the San Francisco Bay Area, complete with short videos inside some of those stores for the purpose of providing a wee bit of context. Later in today's article, in Section Two, Mad Penguin™ takes a look at how software distribution works and why open Tux's move into big box retail marks a big change from its historical pattern of distribution through LUG meetings, mirrors, and Linux how-to books. Finally, in next weeks article, Mad Penguin™ interviews Linspire CEO Kevin Carmony; Xandros CEO Andreas Typaldos; Mepis Linux founder Warren Woodford; and Kevin Jones, Micro Center Vice President of Merchandising, to get their take Tux's jump into big box retail.
Our investigation produced the following findings: Of the stores we visited, only Linspire Linux was sold pre-installed on computers in-store. Those FOSS boxes were often among the store's best volume sellers, primarily because they were the cheapest, according to store staff. The staff believed, based on conversations with frequent customers, that most customers were buying the boxes to install Windows on them. But that is not surprising to us, because, as we discuss in section two, brick-and-mortar "computer" stores are still part of the Microsoft distribution chain. The fact that there were some open source products at all in these stores is actually surprising, as Microsoft guards its distribution chain jealously, and punishes those business partners who stray into carrying FOSS products.
One caveat: this article is not meant to be a comprehensive look at where open source and GNU/Linux are right now in retail. That subject is huge. Mepis Linux is being distributed by Tafusion, and is available at the Micro Center store we visited. Sun's Java Desktop Linux computers have been sold through Walmart. PC powerhouse Dell has started selling notebooks in Europe with Mandriva Linux pre-installed. At least one brick and mortar store in Toronto, Canada, called Sub300.com, is dedicated to selling nothing but open source computers. Damn Small Linux can be purchased on flash drives, to permit you to carry your OS and data with you in your pocket! Individual entrepreneurs have offered Ubuntu boxes on eBay. Googling "Linux notebooks" produces pages and pages of companies selling GNU/Linux on notebooks. A wide variety of Linux distros are distributed worldwide in books and magazines, including books we found in Borders Books, of course. And this doesn't even begin to take into account all of the myriad devices that run on Linux.
Rumors abound that Google will soon offer some type of operating system, which has led to this hilarious parody
by The Register that Google supposedly is planning to create a Ubuntu-based distro hilariously named "Goobuntu."
(The Register magazine has
also claimed that Mark Shuttleworth has been talking with white box OEMs to pre-install Ubuntu, although that is the same article says that Google supposedly was planning to create "Goobuntu.") Putting the Register's farce aside, all of this Linux desktop commerce will add up to Linux desktop PC sales of up about $10 billion USD in the year 2008, according to one IDC study. With an industry already that huge, we could only try to cover one
little slice of it in this story.
Section One:
Mad Penguin Goes Shopping
We visited four big box-type stores in the San Francisco Bay Area: Micro Center, Fry's, Comp USA, and Borders Books. We chose these stores because we think that they are somewhat typical of what retail shoppers might see. For each of these stores, we considered a few basic aspects of the shopping experience: Store size, layout, and accessibility; product placement; FOSS product inventory levels; FOSS variety variety; turn-over rates of FOSS inventory; and staff training levels and enthusiasm. In some cases I shopped alone. In other cases, I shopped with an informant who was more familiar with pricing and inventory availability of FOSS products. We didn't have enough room to fit in all of the still pictures that we have available, so do click on the videos if you want to a visual of our shopping experience. These videos are not Steve Spielberg; the idea is to just let you see the objects I'm discussing.
(Store) Size matters
As you will see later on, retail profit margins are razor sharp. Every little detail is crucial, from store size to product placement. The stores with the lowest net infrastructure costs, including square footage, are bound to be able to muscle out the smaller stores. Also, in retail, revenue is determined by a combination of how many
times the store can turn over its inventory in a year multiplied by the gross margins on its product lines.
In this case, the four stores we visited were definitely monster chains. Let's start first with CompUSA. There are two locations in San Francisco. San Francisco is a tiny and densely-packed city. It is usually ranked first or second in recent surveys of the cost of housing in the US. The store location I visited (alone) is located just four blocks off of Union Square, the priciest shopping space in the city. Space here is so expensive that most of the store is actually below ground level. The precious ground level area is taken up only by advertising and a few-customer service related functions. Parking is nonexistent, unless you prayed intensively for street parking before setting off on your shopping excursion. See page two of this article for the short video zoom in on the store.
As you will see, this store earns lower marks in FOSS product variety and inventory compared with Fry's and Micro Center. Maybe the retail space is just too expensive at this location to dedicate much precious shelf space to products they consider to be "experimental".
L to R: Micro Center: GPS needed to find your car!; CompUSA: parking not optional
Contrast the CompUSA experience with shopping at Fry's and Micro Center in the South bay. Although land is expensive everywhere in the San Francisco Bay Area, the southern part of the San Francisco Peninsula has much cheaper square footage rates. Fry's and Micro Center there are larger square boxy stores, with Frye's being about three times larger than Micro Center. Maybe their lower square footage costs let them carry more alternative products such as open source software.
Borders Books is located just half a block from San Francisco's Union Square, and they had the largest selection of open source books (not too surprising). Ironically, since many open source books come with distros packaged in the back, Borders actually had the largest selection of software of all four stores that we visited! This is consistent with Harvard Business professor Clayton Christensen's theory that disruptive technologies like Linux tend to grow up in supply chains that are not beholden to the market leader. Borders formerly carried packaged software at that location, but stopped doing so. Their suppliers want to sell books. Open source books sell better with distros in them. More on this later.
Product Placement and FOSS inventory levels
On May 11, 2005, Linspire Linux announced that its products would be available in Micro Center stores nationwide, a US national chain with 20 stores across the country. Then, on October 5, 2005,
Linspire announced that they had struck a deal with what is arguably North America's largest retail distribution company, Ingram Micro. About two weeks later, on October 17, 2005, Xandros announced a similar, but slightly different deal with Channel Sources, a much smaller, privately held company that aggregates
products into related bundles and then feeds those products to larger channel distributors, such as Ingram.
As next weeks interview with Linspire CEO Kevin Carmony points out, getting into mainstream retail is chicken-and-egg problem. Retailers won't sell Linux distros to the public, because those distros are not easily available through in the distribution channel; and distributors won't take a chance on backing a product that will not add to their overall revenue or their razor-thin profitability margins.
Of the four stores we visited, CompUSA had the smallest shelf space dedicated to open source software. I didn't see any books on open source on their shelves. As the “CompUSA Shelves” clip on the next page shows, there were just a few boxes of Linspire Linux and SUSE Linux available on CompUSA's shelves. Contrast that with the pictures below of the space that was available in Fry's and Borders. Fry's dedicated an aisle header to SUSE Linux. That is highly sought-after space. Fry's also had a limited selection of books on open source (at least for an "electronics" store). See the next page of this article for two short videos of Fry's book section. Fry's had three FOSS computers on display, all low end boxes, and all with Linspire Linux pre-installed. That video is also on page 2.
Borders Books had a relatively large selection of books on FOSS, the equivalent of one entire shelf reaching more than 7 feet high, and about 2.5 feet wide. Many of those books had CDs included.
L to R: Linspire banners in the Micro Center store; Borders: lots of books, and many with ditros CDs!
Micro Center had a few shelves with Linspire Linux, SUSE Linux, and was the only store to also offer Xandros Linux and Mepis Linux. Micro Center also was unique, in that it promoted Linspire with two distinct advertising banners prominently displayed in the product section where they sold PCs.
It was also interesting, and a bit sad, to note that Micro Center offered only one Linspire computer as a display, and that computer was running Linspire 4.5, not the most recent 5.0. (See the picture above, in which the Linspire 4.5 computer is on the far right, or see the video on page 2 of this column). Compare that offering with the store's Apple section, which was much larger and more spacious than their PC section. There were fewer aisles in the Apple section of the store (meaning more emphasis on the existing aisles), better lighting, and lots more free standing sales displays, such as free-standing iPod displays. I am inferring that the Linspire displays were a direct result of contractual agreements between Linspire and Micro Center for that specific advertising, although neither Linspire nor Micro Center would comment on any such specifics. I'm guessing that Apple either probably also pays for their space and in-store advertising, or offers Micro Center a higher margin as an incentive for the more prominent product placement garnered by Apple products. But that is sheer conjecture on my part.
Overall, I was reasonably impressed with the open source displays in Fry's and Micro Center, considering the amount of Linux sold compared to what I imagine the Microsoft Windows sales volume in those stores must be. Fry's had the best packaged software selection in terms of volume, in that it had many shelves of SUSE Linux 10.
Fry's: lots of SUSE 10.0 boxes
Micro Center had the best variety, at least in terms of packaged software. It was particularly praiseworthy that Micro Center would stick their necks out and offer the kind of prominent Linux advertising that they did offer. (Although, I do wonder if Linspire knows that Micro Center had only had one single Linspire box, and it was running an antiquated version of the Linspire distro.) When you consider the kinds of revenue that Micro Center probably makes from the sale of Microsoft-related products versus Linux-related products, it is admirable that they would take the risk of offering these products. If you are in the market for a second computer for your home or business, and it doesn't need to be a screaming fast box with the latest and greatest hardware components, you would do well to see if there is a Fry's or Micro Center store in your area. Go down there and support their efforts to flirt with FOSS!
