Speakeasy speaks to Best Buy's business strategy

Speakeasy, a fixture in Seattle's high-tech scene for more than a dozen years, is being sold to mega-retailer Best Buy for $97 million in cash.

The company, which provides broadband Internet access and voice services to small businesses, will operate as a wholly owned company under Best Buy for Business, the retailer's small-business division.

All of Speakeasy's 300 employees will keep their jobs, and the company will retain its name.

Speakeasy Chief Executive Bruce Chatterley said more access to the small-business market is at the center of the deal.

"We never had the resources to expand our brand recognition," Chatterley said. "This goes a significant way to helping us to fix that problem."

Speakeasy, founded in 1994, started off as a trendy Internet cafe in the Belltown area of Seattle. It has survived a devastating fire in 2001 and a shift in business models over the years.

Today, it is a nationwide broadband provider, serving about 40,000 customers with DSL, voice over Internet Protocol and other technologies.

As recently as the end of last year, privately held Speakeasy became profitable, earning income before some expenses. Revenue in 2006 reached $80 million.

Over the years, it has raised $50 million in venture capital. Investors have included 3i, Granite Ventures, BV Capital and Intel Capital.

Chatterley said Best Buy, based in Richfield, Minn., has done a good job of identifying the chain's customers, and one of the biggest segments is small business.

"That segment has grown pretty dramatically over the last three years and, as they looked at growth prospects, communications is at the centerpiece of what small businesses are all about," he said. "That's the genesis of the relationship."

Andy Hargreaves, an analyst focused on consumer electronics at Pacific Crest Securities in Portland, agreed that the acquisition serves Best Buy's efforts to do more with small companies and expand beyond consumer retailing.

"With increasing saturation of the consumer market and a market opportunity that probably is greater than $20 billion, we think it's very important to the future growth of the company," he said.

The Speakeasy acquisition fills out Best Buy's offerings of hosted services and VoIP, which are attractive to the small and home-based businesses Best Buy is targeting, Hargreaves said.

Equally important is Speakeasy's expertise in servicing small and midsize customers, Hargreaves said.

Among other things, Best Buy is known for the Geek Squad technical-support personnel who do on-site or in-store repairs and servicing of computers and other equipment.

"Speakeasy has a reputation as being very good at customer service and having a very loyal customer base," Hargreaves said.

Chatterley said Speakeasy started formally looking at a possible sale late last year after several independent communications companies had been acquired.

Best Buy emerged as an acquirer, finding appeal in Speakeasy's relationships with 4,700 independent information-technology consultants.

"For small businesses and tech-savvy professionals, Speakeasy offers innovative IT and communications services, backed by outstanding network reliability and terrific customer support," Darren Jackson, Best Buy executive vice president and chief financial officer, said in a release.

Chatterley said that with the acquisition, Speakeasy will also gain access to more capital, retail stores and a strong brand.

"It will be business as usual, but what you'll see is growth at an accelerated pace," he said.

"We expect this thing to be a launch pad. I think it will be great."

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

Seattle Times technology reporter Benjamin J. Romano contributed

to this report.