As you may have heard, Walmart acquired consumer electronics brand Vizio. Previously rumored and announced yesterday, the $2.3 billion deal will bring the increasingly-respectable budget brand most known for its televisions under the Walmart umbrella. The natural question that follows is Why?
There are several reasons for this acquisition, some more obvious than others. At a surface level, one reason comes down to supply-chain economics. Walmart can improve its margins on big-ticket items like TVs and soundbars by flattening its supply chain as owner of the popular Vizio brand.
But a bigger reason hiding below the surface has more to do with our favorite ongoing topic: revenue diversification. For Walmart – and most retailers these days – the most logical and synergistic path to revenue diversification lies with retail media. This brings ad dollars into the retail revenue mix.
Blue Light Special
Breaking that down a bit, retail media’s domain is most often the physical footprint of retail stores. The thinking is that retailers sit in a unique and influential spot at the lower portions of the consumer purchase funnel. They can therefore utilize all that in-store inventory for high-impact promotions.
This is the inventory previously used for house ads and blue-light specials. By formalizing it as ad inventory through signage and digital displays, it squeezes more revenue out of retailers’ unique physical orientation. And retailers have existing brand relationships so it works from a sales perspective too.
Back to Vizio, Amazon wants to take that retail media opportunity and expand it beyond its own four walls. In other words, it can build an ad network that includes both in-store inventory and consumers’ living rooms. We’re talking about the latest frontier for digital advertising: smart TV interfaces.
That last part requires a bit of background. Competitive pressure in the TV world has driven prices down. To maintain margins, TV brands from LG to Samsung increasingly treat their smart TV interfaces and menus as commercial zones. Some, like Roku, also offer free ad-supported streaming content.
Sony is one exception, as most of its TVs run on GoogleTV, which has limited ads. (AppleTV users also sidestep ads) But several other Smart TV operating systems, including Vizio, include an ad-rich environment. Vizio’s Smart TV operating system SmartCast has more than 18 million active accounts.
Living Room Blitz
So for Walmart, owning Vizio tees it up to provision ads in all the above ways. And when you combine that with its in-store retail media offerings, it can start to attain economies of scale. In ad network terms, that translates to greater reach, cross-platform targeting, format variety, and negotiating leverage.
Overhanging all of the above is another factor: Amazon. As Walmart’s online arch-rival, it has shown what can be done by bolting advertising to e-commerce. There are natural synergies and, again, revenue diversification advantages. Walmart no doubt sees Amazon’s exploding ad business as validation.
In a more specific sense, Amazon’s ad business has likewise expanded to the living room. It’s increasingly blitzing that domain when you consider the Prime TV app, as well as Amazon Fire TV set-top boxes, and – more directly related to Walmart’s Vizio play – full-fledged white-label TVs.
There could also be competitive pressure driving Walmart’s moves. Amazon just surpassed Walmart as the largest product seller in the U.S. The latter could be getting nervous due to the maturation of its core business, which is often the biggest trigger for revenue-diversification moves. That’s where it sits now.
The remaining question is if all of these retail media networks – and Walmart’s latest expansion – will impact ad market economies. In other words, will this all lead to ad-inventory oversupply, competing for a fixed (and downturn-impacted) ad spending pie? That’s the X-factor we’ll be watching closely.
