Wal-Mart's Online Video Failure: Yet Another Lesson...

Henry Blodget | December 28, 2007 8:47 AM

walmartvideofailure.jpg
One e-commerce refrain we've heard since 1995 is that once the established real-world brands get their act together, the online pure-plays will be toast. We're still waiting.

Why couldn't Barnesandnoble.com put Amazon out of business? Why can't BlockBuster, Wal-Mart, et al, put Netflix out of business? Why can't the networks put YouTube out of business? Why can't any number of online music start-ups put Apple out of business?

Some of the many reasons:
  • Online is a different business. Understanding half of the skills and competencies required--namely, procurement--doesn't cut it.
  • Early-mover advantage is critical: online stores open their doors to the entire world all at once.
  • The advantages of an established brand aren't minimal, but they're also not enough.
  • Channel conflict: No matter how savvy and powerful you are, your first priority as an established offline business is to protect your core business--and your attempts to do so almost always make your online business fall short
  • Start-up vs Fortune 500 culture. 
Over the past few years, some Fortune 500 companies (including Wal-Mart) have been able to overcome these challenges and build respectable sideline web businesses. The online businesses will always be sidelines, however, and they have not yet threatened the pure-play leaders. 

If anyone ever threatens Netflix in movie rentals, or YouTube in online video, it will likely be another pure-play without a legacy business to protect (and, for the most part, this includes Hulu, which even in its independence is still hamstrung by channel conflict).

Screenshot from Engadget


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14 Comments

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Abner said:
Bingo.

I was having beers recently with a friend who runs "the online store" for a good sized bricks & mortar company. When I asked him about things that might seem easy - like order online and pick up in the store. He groaned and talked about how basic inventory issues that are key to running an online store are incredibly hard to foist upon the current lack of inventory tracking in most retails stores. Online only entities don't have to deal with that kind of crap, but many of the known brands have missed the opportunity to purchase online businesses that have dealt with their own demons.
Bjorn Tipling said:
I think you hit the head on the nail about the channels issue and Hulu is a great example. The site seems to be trying to balance getting people to watch content on the site and trying to lure people to watch the shows on TV. Limited content is available, there are notifications about what time and day a show airs on TV. It's ridiculous. I don't watch TV anymore! I don't *ever* plan on watching TV again. I buy tv shows on Itunes and xbox, I watch videos on youtube. Consumers want access to any show any time, and they can get it whether or not the industry provides it. I think it will just take a generation for these old executives who don't have a clue to cycle out. I am so surprised to what extent these people are clinging to an outdated strategy. I think corporate culture will have to change. In its current form it's not capable of manging disruptive technology.
Kontra said:
In a frenzy to catch up with Apple, the industry hasn’t learned much from the PlaysForSure debacle by watching Microsoft abandon its own DRM and introduce Zune with a new and incompatible system to compete directly against its erstwhile digital music “partners.” In another instance of mortgaging success to others’ willingness or ability to innovate, AOL recently moved its struggling video service to Amazon Unbox which in turn is based on Microsoft’s PlaysForSure.

The irony here is that Wal-Mart relied on HP that relied on Microsoft and AOL relies on Amazon that relies on Microsoft which itself no longer relies on its own PlaysForSure. When a core component of a product or service depends on the rate of innovation of another party over which you have no control or influence, it’s time to rethink strategy. It’s also time to ask yourself, twice or thrice removed from core competency, should you really be in such a business?

Strategic design risks (1): Wal-Mart’s foolhardy reliance on “partners”
http://counternotions.com/2007/12/28/walmart-video/
Henry Blodget said:
I'm not suggesting that pure-plays always succeed--far from it. Just that the online business cannot just be considered another "store."

Obviously there are retailing categories where physical store retailing is the better model or only model that works, and e-commerce will always account for only a fraction of overall sales. The point is simply that it's much harder for physical world retailers to extend their businesses online than it is for a pure-play to build an entirely new business around the online channel.

(With the Walgreens example, I'd also love to know how profitable the store is, if at all.)
Michael Learmonth said:
Wal-Mart has long known that its walk-in store customer is very different from the digital consumer it was trying to attract. A studio source told me a few years ago that Wal-Mart had done some research that found the majority of its walk-in customers with home computers had very old (Windows 95) systems, meaning their ability to promote their digital offering to in-store shoppers was probably limited.
Anon said:
Are you looking only for evidence that confirms your thesis? For instance, what happened to webvan.com and drugstore.com? If I were to be inclined to order groceries online, I could just as well use safeway.com. Likewise for walgreens website instead of drugstore.com.

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