How Vizio conquered TV

July 25, 2012: 3:01 PM ET

In less than a decade, the California company went from making off-brand sets to being a major disruptor. Now, it's giving struggling competitors something else to worry about: innovative new televisions they might not be able to match.

By Peter Suciu, contributor

FORTUNE -- Last month TV maker Vizio began selling its Cinemawide TV, which features an ultra-wide 58-inch screen that is designed for viewing movies as they were meant to be seen -- without the common black bars on the top and bottom. The super-wide set offers a resolution of 2,560 by 1,080 pixels and a 21:9 aspect ratio to give viewers a more theater-like viewing experience.

Gadget manufacturers, TV makers in particular, have long plied consumers with ever-longer, more complex-sounding technical specifications. But Vizio's Cinemawide isn't a typical exercise in electronics bravado. It heralds a bold shift for a company that has gone from a purveyor of chintzy, off-brand sets to being a major industry disruptor in less than a decade.

Vizio entered the U.S. market by, in essence, disrupting it with low-priced TVs back in 2002. That quickly paid off for the Irvine, California-based company. According IHS iSuppli, Vizio shipped about 1.21 million LCD TVs in the first quarter of 2012. And while this is a drop from the 1.56 million sold in the same quarter a year earlier, the company reclaimed the top spot for sales of the flat panel LCD sets in the United States. What's more, Vizio has seen nearly continuous growth since itsĀ founding. It is estimated to have had revenues that exceeded $2.9 billion last year. (The company is private and does not disclose earnings.)

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"They have been a very competitive and disruptive brand," says Paul Gagnon, director of North America TV research at NPD Group's Displaysearch. Vizio has disrupted the market by not following the traditional, vertically integrated flat panel TV manufacturing process, which typically has a single company designing, manufacturing and marketing a line of products. Instead, Gagnon explained, Vizio designs the sets but then looks to outside manufacturers, disrupting what he called the "status quo."

Competitors might have seen it coming. After all, Vizio cribbed parts of its playbook from electronics juggernauts past. Just as Japanese firms including Sony (SNE) and Panasonic (PC) edged out established brands such as RCA and Magnavox, only to see Korean upstarts LG and Samsung take away market share, now Vizio is battling with Samsung for the top spot. "If you look at the history in the TV space in the last years, you will see that Vizio did enter through disruption," says Matt McRae, Vizio's chief technology officer. "At the time most of big TV makers were still producing CRTs or rear projection sets, and the flat panel sets that were offered to consumers came with a high-price."

Surprisingly, Vizio was founded not in some far-flung, low-cost manufacturing city, but in California. It was started in 2002 by William Wang with just $600,000 and help from friends Laynie Newsome and Ken Lowe. The three had worked together at Wang's former company MAG Innovision, a maker of CRT displays in the 1990s. After helping Gateway Computers briefly enter -- only to quickly exit -- the TV market with affordable plasma sets, Wang struck out alone. His vision: sell flat panel sets that severely undercut the competition just as traditional CRT sets were being replaced by newer technology. "The market has had a low barrier to entry," says Gagnon, "but this strategy played out for Vizio a little better than it has for others who have tried to enter."

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The company was able to accomplish this in no small part because, unlike most of its rivals, it doesn't actually manufacture its own sets. Vizio has never been a manufacturing brand, and never owned a factory of its own. "The company instead has a similar strategy to Apple (AAPL)," says Tom Morrod, senior analyst and head of TV technology at IHS iSuppli. "They don't own their own manufacturing, they don't own the suppliers. This has been a very successful strategy for Apple and it could be very successful with Vizio."

Taiwan-based AmTran Technology currently is one of four firms that manufacture products for Vizio, while it also owns a stake in the company. "Each of the manufacturers we work with does something well, and we do have manufacturers that do specific products like sets in one screen size very well," argues McRae. "When we are building a specific TV we try to pick the best components and look for who would be the best match to manufacture the product." His point: Vizio is nimble and flexible in ways competitors can't be.

So far, this has allowed Vizio to nab 18.5% market share in the popular 32-inch and 40-to-42-inch screen sizes. The company has also branched out to other gear such as sound bars -- speakers that sit underneath a television -- where it has the top spot with 27.5% of the market. The company is likely to continue expanding. At the annual Consumer Electronics Show in January Vizio introduced a line of computers, including two all-in-one desktops and three notebooks.

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TVs of course are where the company has made its mark, and where it will likely continue to focus. It has largely been successful by providing value when consumers consider price over just about everything else, including advanced features. "There is nothing innovative in it by its own right," Morrod told Fortune. "But the price especially has appealed to a large portion of the population and allowed Vizio to become a leading brand by sales."

The question is where Vizio can go from here. It has managed to grow by outflanking slow-moving competitors used to fat margins. Its ambitions to provide all manner of high-end electronics may not jibe with an economic climate where many consumers, according to analysts, still look for the lowest sticker price. "We're far from the cheapest brand on the market at
present," counters McRae. "We're seeing many cheaper brands pop up but they're gone in six to nine months."

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