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As Wal-Mart's (NYSE: WMT ) fights to retain its major competitive advantage, you'd think the company could ill afford any fashionable distractions. So why is the mammoth retailer buying a social media company?
The discount giant plans to purchase social media company Kosmix for an undisclosed sum. Kosmix's team will comprise part of a new @WalMartLabs group that will develop initiatives related to online shopping, including making purchases via smartphone.
Kosmix filters and tracks social media trends. Founder Anand Rajaraman's blog boasts of Kosmix's "Social Genome" platform (not to be confused with Pandora's Music Genome), which builds profiles of users, topics, products, places, and events.
The Kosmix team has bragging rights in e-commerce; several members have heavyweights Amazon.com (Nasdaq: AMZN ) and eBay (Nasdaq: EBAY ) on their resumes. Kosmix believes that its platform will become a strong e-commerce force by providing "an unprecedented understanding about customers and products," allowing the company to take "search, personalization, and recommendations to the next level."
This all sounds pretty trendy -- maybe too trendy for Wal-Mart -- but there's a precedent for digital envy from the Bentonville Behemoth. Do you remember Wal-Mart's attempts to take on Apple (Nasdaq: AAPL ) in digital music downloads, or its repeated attempts to rival Netflix (Nasdaq: NFLX ) in movie rentals? You could be forgiven for forgetting. These years-ago initiatives didn't dent either company's successful products.
Who doesn't like talk of genomes and labs? It always sounds exciting to discuss cutting-edge technology, and it's understandable that Wal-Mart management wouldn't want to be accused of missing big opportunities in the marketing capacity of social media. Social media is indeed driving a sea change in the corporate landscape; it can be a major sales driver for companies, but it's fraught with risk if consumer discussions turn negative and go viral.
Wal-Mart undeniably must turn back the tide and woo new customers, but getting back to its low-priced roots -- its true competitive advantage -- sounds like a much more ideal way to do so. To me, a social media acquisition seems like a step in a distracting direction.
Is this a great idea to boost Wal-Mart's flagging U.S. sales, or a major mistake? Sound off in the comments box below, or add Wal-Mart to your watchlist.