Speaker Manufacturers: Internet Direct vs Brick and Mortar

Few disagree with the viewpoint that the Internet has redefined the loudspeaker industry through the development of Internet direct speaker manufacturers. However, many disagree about advantages and disadvantages of Internet direct (ID) manufacturers versus manufacturers with traditional distribution models (brick and mortar store sales chain). Some claim that ID brands have lower overhead costs and skip the middleman; therefore they can produce products for less. Others argue that traditional manufacturers tend to sell more units so they can buy parts cheaper, and save on costs by shipping in bulk, so they are in a position to provide better products. There are good points on both sides of the argument as well as some not-so-good points. This article and recently added YouTube video aren’t the definitive word on the debate, but we offer a few ideas to give you a more well-rounded viewpoint.

YouTube Video Discussion:  Internet Direct vs Brick&Mortar Speaker Companies

Overhead

People often assume that a small company with little management and operational overhead will have a tangible advantage over a large, established company. The large company might have separate HR, PR, marketing, web development, engineering, vendor relations, and legal departments. They also have a larger management structure and more costs for daily operations of the company (taxes, technology upgrades, communication systems...we call that "overhead".) In a smaller company, a handful of individuals will fulfill multiple roles, decreasing staffing costs. This includes the CEO, who is likely to be involved in actual daily operation. Operating a smaller, leaner company can be a big advantage.

Naturally, big companies have their advantages as well, namely economies of scale. While a large company will tend to have much greater overhead costs than a one man show, if these costs are spread over significantly more units sold, the smaller company’s advantage can vanish very quickly. So which is better? Practically speaking, much depends on the companies themselves; it’s easy to conjure scenarios where a large company has an advantage over a small competitor and vice versa.

Of course, it is important to realize that not all ID brands are small companies, nor are B&M brands inherently massive, Walmart-esque corporations. Although most ID brands started out small, many of them have grown into multi-million dollar businesses. Also simply considering staffing costs does not tell the whole story. Think about shipping; an ID company that offers free shipping is taking a big hit to their margins for every unit sold. A company with a traditional distribution model can ship hundreds of units at once, reducing their overall costs. It’s also important to note that just because a company has lower overhead costs, there is no guarantee they are going to pass that savings along to the consumer in the form of lower prices.

Cost of Parts and Volume of Sales

It doesn’t take an MBA to figure out that if you’re building and selling a hundred thousand units of a particular model of speaker per year, you’re probably paying less for parts than a small manufacturer that may only sell a couple hundred units per year. It’s also not uncommon for larger companies to build their own drivers versus sourcing from a supplier such as ScanSpeak, which may reduce costs further. Of course, while there is no argument that buying in bulk can save money, which appears to be an argument for a large traditional brand, it is also true that many ID brands are large enough to order in sufficient bulk to put a sizable dent into this line of thinking.

 $139 In-Wall Speaker from B&M Brand. Where's the Beef?

It is also important to point out that the cost of parts is not a particularly useful way to judge a loudspeaker. Many people jump to the conclusion that because product A has more expensive parts than product B, A must be better. We firmly believe in the value of putting high quality parts in AV products, but building a good speaker takes a lot more than just tossing in expensive components. Speakers such as Pioneer’s current value line designed by Andrew Jones prove that you don’t need a hundred dollar tweeter to achieve good sound, and showcase how important the quality of the total design actually is. This isn’t to say that ID brands inherently suffer from shoddy engineering, because some of the best speaker designs we have seen come from ID brands, simply that a speaker is more than the sum of its parts.   

The Middle Man

One of the advantages regularly touted by ID brands is the fact that they remove the middleman from the equation. On the face of it, this should be a big advantage. Whether we’re talking about selling products in a small A/V dealer or in a big box store like Best Buy, there are significant costs associated with this method of distribution. A local dealer has to rent floor space, pay employees (both sales staff and management), incur their own overhead costs, not to mention turn a profit, and all of that naturally gets passed down to the consumer. A 50 point margin or more isn’t uncommon on the B&M side, meaning that a dealer might buy a speaker for $50, and sell it for $100 (although it is possible to get significant discounts off MSRP, particularly if you are going to buy other products/services).

On the other side of the coin, it is also possible to view the middle man as the B&M model’s greatest strength. The chief advantage of the brick and mortar model is the ability to listen to the product before making any sort of commitment. Moreover, you can typically compare multiple similarly priced loudspeakers, which is useful in determining ones preferences. The ability to touch, feel, and listen to a speaker before you put money down is an undeniable advantage to the B&M distribution model. Of course, there is a counterargument to this as well: ID companies let you audition where it is most important, i.e. in your own home. There is certainly logic to this line of thought, as the acoustic space in your home is unlikely to match a B&M dealer’s listening space, thus you can’t expect exactly the same sound between the two.

Another benefit of a middleman is that most also offer other products and services you may want. Many of us at Audioholics tend to go the DIY route (even when we should ask for help), but the general public can benefit from a one-stop-shop. It can be advantageous to have a salesperson guide you through the purchase process of selecting the right gear, accessories, and even installation.

Of course, it is possible to bridge the gap between these different distribution methods. My suggestion to those interested in ID speakers would be to join the Audioholics forums and ask if anyone owns the speakers you’re interested in and would be willing to give you a demonstration. Also check out our article comparing the policies of various ID brands to find out if they even offer an in-home trial period, and who covers shipping to/from your home. Conversely, for those going the B&M route, it would be wise to verify the return policy with your dealer should you change your mind about a speaker when it's actually in your home.

Summary and Our Opinion

As one might guess after reading this article, we aren’t really picking a winner between ID and B&M. Frankly, the method in which a loudspeaker is distributed is no indicator of value to the consumer. Even if ID Brand A boasts more expensive parts relative to B&M Brand B (which is not always the case), Brand B’s brilliant engineers could spin gold while Brand A produces a ho-hum speaker. Still, we must say that ID brands have shown up in a big way and have often set high benchmarks, leaving many B&M brands to play catch up. We would suggest one of the main reasons ID brands have become known for great quality at low prices is not just because of logistical issues, it's because of a shifting paradigm. As companies grow, key players and goals change. Most  speaker companies are started because a few enthusiasts want to make the best speakers they can, but over time a company can lose sight of its original goal. As more stakeholders are introduced into the mix, the business of making money can take center stage, putting profits over quality and innovation. Most ID brands are only a few years old, meaning they are still honed in on their original goal and driven by their passion to make great products. In these companies the engineer, marketer, and CEO are all the same person, rather than separate stakeholders with competing agendas. Additionally, when a company is in its infancy it is required to compete based on product, whereas an established company can rest on their laurels and marketing campaigns. The real question to ask isn't if a company is ID or B&M, but what are the goals of that company. We have seen both ID and B&M brands lose sight of their original goals and focus almost solely on money, losing the qualities that made them successful in the first place.

As always, it pays to do research, and that ideally includes listening, before you commit to any speaker, ID or B&M. In the end, it comes down to the product itself, not the name badge on the front.