WWW doesn't stand for World Wide Wal-Mart, apparently.

The country's largest retailer is again flunking out of a Web-based initiative: its video download service. Wal-Mart (NYSE:WMT) launched the digital delivery of flicks last year, making waves when it bundled the DVD release of Superman Returns with a download of the superhero movie.

Superman is susceptible to Kryptonite. Wal-Mart's Kryptonite is cyberspace.

Wal-Mart faults the service's demise to the pullout of tech partner Hewlett-Packard (NYSE:HPQ), but let's not kid ourselves here. How many people even knew that Wal-Mart was serving up new releases digitally?

There is no better anecdotal evidence of Wal-Mart's irrelevance in this space than noting that Wal-Mart closed its digital storefront seven days ago, and it is only now that the story is making its way through the media.

No passing grade
When it comes to the Internet, Wal-Mart is a Luddite.

  • It bowed out of the DVD-rentals-by-mail market two years ago, handing its slim subscriber list to rival Netflix (NASDAQ:NFLX).
  • Wal-Mart's attempt at social networking bombed last summer, lasting just two months when it realized that kids don't want to congregate on a site that's so obviously corporate-driven. (This summer's attempt on Facebook wasn't too successful either.)
  • The retailer has been called out in its attempts to influence the blogging community, culminating in criticism after bankrolling the freelancers behind the Wal-Marting Across America travel blog. 

This all comes from a company whose own namesake site had its share of false starts before emerging as a force in Web retailing.

Wal-Mart is not cool. It never will be cool. It will never make a dent in a Web 2.0 world because it still can't get Web 1.0 down. Even a hub of "cheap chic" chicanery such as Target (NYSE:TGT) hasn't succeeded at pulling off the ideal double-life.

But that's OK. A company can't be all things. Wal-Mart's strength is as a technology-driven retailer. Inventory control prowess, purchasing power, and other economies of scale will shine kindly always on the chain that Sam Walton built. That's huge. Wal-Mart will be able to compete on price at the retail level forever.

It is because of those inherent advantages that Wal-Mart may one day pose a bigger threat to Amazon.com (NASDAQ:AMZN) online. Once the playing field is leveled and everyone is scouring shopping comparison sites, why won't Wal-Mart bubble to the top? You don't need to be cool or hip to deliver a great deal.

However, the same can't be said for digital media. For starters, Wal-Mart's heart will never be in the right place. Wal-Mart moved into video and audio downloads begrudgingly. It would much rather sell you the physical CD or DVD product in-store where it has a pricing advantage. In the inventory-free realm of cyberspace, the company's real world advantages melt away, and all that the company is left with is its fuddy-duddy brand.

Better luck next failure
This doesn't mean that Wal-Mart should sever all servers. It just needs to be smarter. I felt that the Superman Returns bundle was a brilliant way to introduce the service last year. Riding on the coattails -- or is that a cape? -- of Time Warner's (NYSE:TWX) blockbuster was a smart way to break into the market.

It just didn't have the conviction to see it through, much less the vision to do it correctly. 

As humbling as it may seem, Wal-Mart needs to distance its brand from its online initiatives. The redefinition process takes too long for a brand too entrenched as a vanilla-bean retailer. Even the mighty Amazon realizes this. When it wanted to launch a high-end store for handbags and accessories, it rolled out Endless.com as a standalone storefront. Gap (NYSE:GPS) did it with its Piperlime shoe store.

Wal-Mart is cheap, but it can't be so cheap it settles for lamentable subdomains, such as mediadownloads.walmart.com and schoolyourway.walmart.com, when it needs to be original. Whether it's a new concept in online retailing or yet another stab at riding hot Web trends, it should do it at a respectable distance.

The teacher's pet in retail can't flunk out forever outside the classroom, can it?

Netflix, Gap, and Amazon.com are recommendations for Motley Fool Stock Advisor newsletter subscribers. Wal-Mart and Gap are Inside Value stock picks. Now is a great time to check out either service with a 30-day free trial subscription to the newsletter of your choice.

Longtime Fool contributor Rick Munarriz prefers Target to Wal-Mart, though he has been known to frequent both. He owns shares in Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.