Walmart's intention to acquire VUDU's on-demand video service may seem like a curious move for a big-box brick-and-mortar retailer. Although eroding DVD category sales is a culprit, my sense is that this move is more strategic and could be more far-reaching if they succeed. Walmart is making a bid to own the customers' zone of attention (and ultimately wallet) through their TV.
Despite the proliferation of the Internet, consumers in the U.S. spend far more time watching TV (both live and recorded) than surfing the Internet or participating on social networks. If they are successful, the substantial position Walmart enjoys today by controlling shelf space in the retail store could extend to the online video world.
VUDU connects a library of more than 16,000 titles directly to internet-ready TVs or Blu-ray players. Through VUDU, users can rent or purchase movies without the need for a cable/satellite service.
No doubt, this market is crowded and complex. The Walmart/VUDU combination competes with the likes of TV cable providers such as Comcast who offer their own on-demand video services (and now content) through triple-play bundles (TV, phone, Internet). A slew of digital content delivery services also compete here.
A Shift from Resell to an Integrated Digital Customer Experience
What I find interesting about Walmart's pursuit of this market is a shift in their business model from traditional retail/e-commerce. Perhaps competing with Apple in the digital music category has taught Walmart a thing or two about the need to offer an integrated customer experience. Walmart.com's digital music store frequently offers lower prices than Apple, but it has not put a dent in Apple's dominant U.S. market share (did you know Walmart has been selling MP3s for 4 years?) The instant gratification of an integrated iTunes/iPod experience seems to outweigh the dimes and nickels saved on sites like Walmart.com - time-onomics over economics.
If VUDU gains broad customer acceptance, Walmart would own the customer's primary interface to video content. This would earn it not only earn a greater share of customer time and attention, but would also give the retailer access to a treasure trove of information about customer preferences and behaviors. If used well, this information can drive greater share of wallet for content, and make Walmart properties even more attractive to advertisers. Walmart has already tested the waters in advertising space by offering its Smart Network on TVs in its retail stores as well as selling advertising space on Walmart.com.
We should also not rule out the impact this move might have on other parts of the value chain. As a major consumer electronics retailer, Walmart could leverage its relationship with TV suppliers to gain preferential placement for VUDU inside the television sets and devices it sells. By placing itself above Netflix and Amazon.com's Video on Demand, it could gain greater attention and customer adoption, just as the top items listed in a Google search reach the largest number of viewers. We might see a similar tactic from Best Buy with the streaming service it is developing with Sonic Solutions, Roxio CinemaNow group to set itself as the default service baked inside the consumer electronics that it sells.
More is Yet to Come
Walmart's acquisition of VUDU shows promise, but the company is going to have to fight its way to the top. Many hefty players, such as Comcast, AT&T, Sony, Apple, Hollywood studios, and other retailers, are pursuing strategies for market leadership and, in some cases, co-opetition will exist. The question remains whether Walmart will be agile in pursuing actions needed to succeed in this fast-paced market given a business model that differs quite significantly from their traditional (and highly successful) retail core.
We can expect to see interesting strategic alliances and industry moves in the near future, as different players jockey for a position in the digital media market. Ultimately, the consumer has about 16 waking hours in their zone of attention. Those companies that command a significant share of that time will be in a position to lead the pace and profits for the rest of the industry.
What do you think the industry players will do next?
Adrian Ott has been called, "One of Silicon Valley’s most respected, (if not the most respected) strategist" by Consulting Magazine. As CEO of Exponential Edge® Inc. consulting, she helps businesses gain market advantage in an exponential economy. Follow her on twitter at @ExponentialEdge
Adrian is the author of the forthcoming book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy (HarperCollins, August 2010).
This article reflects the author's opinion and does not represent those of clients and affiliates.
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