Walmart (NYSE:WMT) once disrupted the brick-and-mortar market with its superstores, which leveraged their lower prices and superior scale to crush local retailers. But today, Walmart is struggling to fend off Amazon (NASDAQ:AMZN) and other e-tailers, which threaten to render brick-and-mortar stores obsolete.
To counter those headwinds, Walmart has expanded its e-commerce ecosystem by acquiring e-commerce sites Jet.com and Flipkart, investing in Chinese e-commerce site JD.com, and adding new features to its mobile app. Walmart even launched a tech incubator, Store No.8, to develop next-gen shopping experiences in augmented and virtual reality.
Still, Walmart constantly trailed Amazon in two key areas. First, it couldn't match Amazon's in-house support from Amazon Web Services (AWS), the biggest cloud infrastructure platform in the world. That support allows Amazon to quickly process orders, track customer tastes, and predict upcoming purchases.
Second, it couldn't match the appeal of Amazon Prime, which offers customers free shipping, discounts, media streaming, and other perks for $119 a year. However, two new digital initiatives might tilt the scales in Walmart's favor.
Joining forces with Microsoft
To counter Amazon's AWS, Walmart started developing its own in-house cloud platform with the integration of some Microsoft (NASDAQ:MSFT) technologies. The two companies recently revealed a five-year partnership that will make Microsoft's Azure -- AWS' biggest competitor -- Walmart's preferred cloud infrastructure service.
Walmart will convert all of its websites and applications to run natively on Azure, and leverage Microsoft's technology to improve its machine-learning, AI, and data management capabilities. It will also use Azure's tools to manage its supply chain, monitor energy consumption, and control Internet of Things (IoT) devices.
To further strengthen its ties with Microsoft, Walmart will start using Microsoft 365, the subscription-based enterprise bundle that includes Windows 10, Office 365, and EMS (Enterprise Mobility and Security). Microsoft is also helping Walmart develop cashierless stores to counter Amazon Go, according to Reuters. However, the two companies didn't mention this project during the announcement.
Walmart's decision to let Microsoft handle its cloud needs is a smart move. It could help the retailer streamline its business, improve its analytics, and bolster its predictive capabilities.
Making a move in streaming media
Amazon Prime Video is now the second-most-popular streaming video service in the U.S. It reached 26 million viewers in early 2017, according to an internal document obtained by Reuters. Prime Video is still smaller than Netflix (NASDAQ:NFLX), which had 56 million paid U.S. subscribers last quarter, but it's become an essential piece of the Prime ecosystem.
Amazon also offers Prime members a free music streaming service, Prime Music, along with a paid, ad-free version called Music Unlimited. Back in April, Amazon claimed that Music Unlimited had more than doubled its subscriber base over the preceding six months to the "tens of millions."
The growth of Amazon's streaming services threatens both Walmart and Netflix, since an all-in-one subscription plan for shopping, videos, and music can lock in a lot of consumers. It also prevents consumers from taking Walmart's digital efforts too seriously.
Walmart acquired a video streaming platform called Vudu back in 2010, but the service only rented and sold a la carte content like iTunes. It also functions as a digital locker for purchased content from other platforms like Disney's Movies Anywhere. Walmart sold Vudu streaming devices at its stores, then offered free digital versions of DVDs or Blu-rays purchased at Walmart stores on Vudu, but the platform never gained much steam.
However, Variety recently reported that Walmart could finally launch a streaming version of Vudu this year to challenge Prime Video and Netflix. The service will reportedly be cheaper than Prime and Netflix, at $8 per month, but it's unclear if Walmart will aggressively produce original content like Amazon and Netflix.
Vudu could have a tough time cracking the streaming video market, which is filled with plenty of rivals like Hulu and HBO Now. However, Walmart might bundle the service with product discounts or special delivery options -- which could finally help it disrupt Amazon's growing retail-media ecosystem.
The key takeaway
Walmart's cloud and media moves won't move the needle for the retailer anytime soon. However, they could help it keep pace with Amazon's formidable cloud and media growth engines, while giving it unique advantages against rival brick-and-mortar retailers.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Amazon, JD.com, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, JD.com, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.