Wal-Mart's Social Distraction

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.

Wal-Mart is also a Motley Fool Global Gains recommendation and a Motley Fool Income Investor pick. Wal-Mart and Google are Motley Fool Inside Value recommendations; Google is also a Motley Fool Rule Breakers choice. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of Apple, Google, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 19, 2011, at 8:37 PM, darkchoc4 wrote:

    If kosmix was a product, and Walmart was planning to compete directly against an entrenched standard, then this might be a waste. But my expectation is that they are going to apply this to their web site, and this should help online sales. Hopefully they give the kosmix folks some freedom to try stuff.

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