Streaming platform Roku (ROKU 1.91%) and retail giant Walmart (WMT -0.65%) recently announced a partnership to bring interactive ads to Roku users. This partnership is touted as the first of its kind, enabling viewers to shop from their televisions.
Wall Street isn't giving Roku much fanfare; the stock has fallen 13% over the past month. But this partnership could mean big things for Roku over the long term -- here's why.
Bringing e-commerce to television
Shopping from your television isn't a new concept. QVC, the television channel that sells to viewers around the clock, was founded in the 1980s. But shopping from TV is messy.
Do you want that new air fryer you see on the TV program? Call a number, wait on hold, and verbally review your payment information. It's a pain in the neck.
But Roku's advertising technology, or adtech, platform is poised to change that. It will target you with ads for products you're likely to want, based on the first-party data Roku collects from you. You'll be able to press OK on the ad using your remote, and it will take you to a checkout page with your payment and shipping information preloaded from Roku Pay, its integrated payments platform. One more button press places the order.
Walmart will operate behind the scenes, fulfilling the orders on the back end. In other words, Roku is essentially a digital storefront for Walmart's e-commerce business. This brings commerce to television in a way that's never been so simple for consumers. Of course, time will tell how much it sticks with viewers; old habits can die hard.
What's in it for Roku
Roku technically wouldn't be selling the products themselves; it's leaving that to Walmart. However, that's a good thing for the streaming platform.
The announcement didn't disclose the exact terms between the two companies, but you can be confident Roku will receive a fee or share revenue on every sale it makes through its ads.
Those fees should be very profitable dollars contributing to Roku's average revenue per user (ARPU). Growing revenue per user will help increase Roku's top line and could also help increase the appeal of Roku's ad platform to brands.
The company's ability to target users with these interactive smart ads can help it demonstrate to brands its ability to convert viewers into customers. It could be a compelling offering to bring in more ad revenue.
Future platform possibilities
The partnership also gives investors a peek at what the future could hold, where TV becomes a multi-tool of digital entertainment. TVs have slowly been able to do more, and internet speeds are unlocking new technologies.
For example, gaming can now happen through the cloud, removing the need for a physical gaming console or PC. Imagine being able to turn on your TV, open your cloud gaming app on the Roku home screen, and jump right into your favorite game.
As much as smartphones do, they can't replace the large, beautiful displays of TVS, which could remain the center of home entertainment by bringing e-commerce, media, and gaming all into one place.
Roku has 50% of the connected TV market in North America, a sign that TVs doing more for viewers will be great for business. Time will tell how it all plays out, but the partnership between Roku and Walmart is a clear signal of what's to come.
