Best Buy Speaks Easy

I'm not the biggest fan of fake words -- unless they're employed by the peerlessly eneagled Stephen Colbert, of course. But fake words can sometimes help investors. Take "diworsification," coined by Peter Lynch to describe how firms frequently goof when they acquire unrelated business to "diversify" their revenue.

Lynch is right, of course. Managers accustomed to running one style of business are rarely at their best when running something entirely different. Yet that won't stop Stock Advisor pick Best Buy (NYSE: BBY  ) from spending $97 million to purchase business VoIP provider Speakeasy.

Why? Quoting small-business-division leader David Hemler in an interview with The Associated Press, "The core reason we bought these folks is for voice-over-Internet solutions, specifically targeted to small business customers."

There's some logic to that. Best Buy has avoided the struggles that plague CompUSA and Circuit City (NYSE: CC  ) in part because it offers more and better services than rivals. Geek Squad is a good example. The nerds in the black-and-orange VWs are helping small-business customers get more from the tech gear they're buying, presumably from Best Buy.

But will business customers flock to Best Buy to purchase ... phone service? I seriously doubt it. There are way too many low-cost alternatives available, including Vonage (NYSE: VG  ) and eBay's (Nasdaq: EBAY  ) Skype. There's also Verizon (NYSE: VZ  ) , which seems bent on using the courts to protect its opportunity in VoIP. Do you really believe that Speakeasy has a sustainable edge over these giants? I don't.

If there's good news here, it's that Speakeasy's $80 million in revenue is barely a rounding error for Best Buy. That makes the risk of this particular experiment in diworsification pretty small. At least investors have that.

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Fool contributor Tim Beyers, ranked 1,906 out of more than 25,000 in our Motley Fool CAPS investor-intelligence database, didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy wishes the stock market would have a spring clearance sale.


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