Walmart’s bid (with Microsoft) to buy TikTok, the video-sharing social networking service, is a way for the juggernaut to continue to compete with Amazon. A few short years ago Walmart lagged behind in the digital space and was constantly outpaced by the innovation at Amazon in e-commerce, logistics and last-mile delivery. But much has changed in the last three years. When Walmart bought Jet.com in 2016, the goals for its e-commerce business were to consolidate leadership under Marc Lore, to shorten the learning curve for understanding the business, and to develop the back-of-house IT and supply chain infrastructure for running on a massive scale. Walmart can check all three boxes! It has successfully positioned itself as a leader in the digital space and has grown the digital business from $10 billion in 2016 to over $41 billion in 2020. While the current pandemic has been a catalyst in the growth of Walmart’s digital businesses, the back-of-house investments started well before January of 2020.
If the deal goes through, Walmart takes another great leap into innovative technology and it can expand its place in the advertising world and potentially capture a very young Gen Z customer, as long as it works to provide similar content.
Marc Lore, who leads Walmart’s U.S. e-commerce business, has taken it from generating 2 percent of total sales to almost 8 percent in year-ending January 2020. Next year, projections for e-com are as high as 12 percent of total sales (which is expected to soon hit $550 billion annually).
The Odd Couple
Many analysts were surprised by the news of Walmart working on a bid for TikTok, but it actually makes perfect sense. If the deal goes through, WMT takes another great leap into innovative technology and it can expand its place in the advertising world and potentially capture a very young Gen Z customer, as long as it works to provide similar content. Additionally, it can create new streams of revenue by selling advertising space and creating collaborative partnerships to expand product categories and marketplace selling opportunities.
TikTok will benefit by being allowed to continue in the U.S. market amidst government threats to shut it down and will gain valuable insights into converting the social media platform into an e-commerce revenue stream. The timing is right for the two companies, which are both excelling during the current pandemic. The social media craze with TikTok was further heightened this year as many teens have been stranded at home with limited interaction with friends and family. The app is super easy to use and addictive. With over 800 million users, TikTok has struck a chord with those who want to sing, dance and create quick videos to share with friends while taking a break from the current flood of depressing news. The timing is right for Walmart to step in and create something unique and innovative for its legacy brand. Perhaps Marc Lore should head up this initiative as well if the sale goes through.
The blue ocean opportunity for Walmart is to create a social commerce (s-com) platform. S-com sells products through social media networks and is part of the larger e-com sales category but has been very difficult to track for most retailers. In the digital world of e-com, m-com and s-com, the latter is the most underdeveloped, but it has the potential for tremendous growth in the next few years. According to eMarketer, s-com will grow by $8 billion (or 35 percent) from 2020 to 2021 and will become a near $54 billion business by 2024. While s-com only represents 3 percent of e-com sales today, this will grow to 5 percent by 2024.
The s-com business is growing at a faster rate than total e-com sales and next year is a pivotal one for retailers to optimize their digital strategies by integrating s-com into their platforms. Walmart can quickly enter this market with the acquisition of TikTok.
And let’s not forget the one other major motivation for Walmart to buy TikTok: To prevent other companies from doing just that. If you can’t own a majority share, which Walmart unsuccessfully tried, then buy them outright.