It's no secret that online shopping is changing the retail landscape, for better or for worse. The trend has been a boon to any number of e-commerce focused businesses, but none has benefited more than Amazon.com (NASDAQ:AMZN). The once-humble bookseller has risen to become a digital sales juggernaut, leaving many brick-and-mortar retailers scrambling to secure their place in an evolving shopping paradigm.
The company with arguably the most to lose in the emerging e-commerce trend was low-price leader Walmart (NYSE:WMT). The world's largest retailer got a slow start in the digital era, and has since been working to maintain its crown. The first definitive step in Walmart's transformation was its $3.3 billion acquisition of Jet.com, which was recently overshadowed by the whopping $16 billion it spent for a controlling stake in India's Flipkart to gain a foothold in one of the world's fastest growing e-commerce markets.
Now Walmart has taken yet another step to fortify its position against its archrival.
Cloud computing and AI
Walmart recently announced a "strategic partnership with Microsoft (NASDAQ:MSFT) to further accelerate Walmart's digital transformation in retail." This deepens an existing relationship between the two, which developed after Walmart's acquisition of Jet, whose platform was built on Microsoft's technology.
The most telling revelation was that as part of the five-year deal, "Walmart has chosen Microsoft as its preferred and strategic cloud provider, tapping into the full range of Microsoft's cloud solutions." The announcement said that this will include a broad set of "machine learning, artificial intelligence (AI), and data platform" technologies, as well as access to Microsoft 365.
Walmart will be migrating a "significant portion" of both walmart.com and samsclub.com to Microsoft Azure, a cloud computing platform and service, that the retailer says will help with both its global reach and rising customer demand.
The companies will collaborate on a global internet of things (IoT) platform in an effort to bring a host of machine-learning solutions to bear. Walmart plans to use Azure's AI capabilities for controlling connected HVAC (heating, ventilation, and air conditioning) and refrigeration systems to reduce energy consumption at thousands of Walmart's locations in the United States. The company will also apply machine learning to the task of routing the thousands of delivery trucks in Walmart's supply chain.
Partnering against a common foe
This may be the beginning of a larger association, as Microsoft is reportedly working on technology aimed at powering cashier-less grocery stores in a direct challenge to Amazon Go, the e-tailer's checkout-free retail store. Microsoft has developed a prototype system that tracks items customers add to their shopping carts, eliminating the need for cashiers, according to Reuters. The company is said to be in talks with Walmart to partner on the technology.
Amazon debuted similar technology in its first Go store, which opened in Seattle in January. The system combines AI, computer vision, and a host of cameras and sensors to identify items customers have taken from (or returned to) store shelves. Customers scan their smartphone upon entering the store, and are charged for their purchases via the app once they leave.
Walmart and Microsoft are battling Amazon in different domains, and both stand to benefit from the association. Amazon's supremacy in the realm of e-commerce threatens Walmart's position as the world's top retailer, and Microsoft remains the single largest competitor to Amazon's cloud computing domination.
It isn't a coincidence that Walmart and Microsoft have partnered against their common rival, which "is absolutely core to this," according to Microsoft CEO Satya Nadella. "How do we get more leverage as two organizations that have depth and breadth and investment to be able to outrun our respective competition?" Nadella said in an interview with The Wall Street Journal.
This isn't the first big tech pairing designed to slow the ascent of Amazon -- and it certainly won't be the last.
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. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.