This is the latest in Localogy’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here, and its origin here.
Over the weekend the details of the TikTok saga came into sharper focus. Oracle and Walmart are the two U.S. companies that together will own 20% of the new TikTok Global entity.
TikTok Global will presumably own the TikTok app in all markets except China. Oracle will own 62.5% and Walmart will own 37.5% of the 20% stake, which is valued at $60 billion. This makes Oracle’s stake worth $7.5 billion and Walmart’s $4.5 billion. It’s been widely reported that Oracle’s $7.5 billion investment earns it TikTok Global’s cloud business. For its part, Walmart’s $4.5 billion investment delivers “merchandising and eCommerce” to the retailing giant.
Let’s take a closer look at the deal and what it means.
Fluffing Oracle’s Cloud Business
First, this deal provides a nice boost to Oracle’s cloud business. According to Canalys, the top cloud providers — AWS, Azure, and Google — combine for an almost 60% share of the estimated $35 billion global cloud spend. Oracle doesn’t even show up in the chart below. In many ways, Oracle’s return is the most straight-forward. As TikTok continues to grow users and minutes of use, its growing demand for cloud storage will give Oracle a flashy global reference account as it tries to compete for additional cloud business with the global market leaders.
More Angles for Walmart
Notably, most of the reports we read assert that Walmart has more ways to win from this deal. And the deal comes just in time for the king of big-box retail.
For quite some time now, Walmart has acknowledged that it can no longer rely on customers walking through the front doors of its almost 5,000 stores as its primary growth engine. Changing demographics and COVID-accelerated eCommerce adoption make this very clear. And as the lines between commerce and content blur further every day, the potential to leverage TikTok to drive top-line growth at Walmart becomes very interesting. But let’s be honest, driving growth on annual revenue topping $500 billion is daunting.
Analysts and reporters point to a larger play for Walmart to bring more consumers into its ecosystem. Walmart and Amazon are in head-to-head competition for our shopping attention and now our viewing attention as well. Amazon has a huge head-start in long-form video via Amazon Prime. And now Walmart has a vehicle to begin playing catch-up, albeit via short-form video.
Data Mining for Retail Advantage
So let’s take a quick look at that audience Walmart can now leverage. According to this source, TikTok has an estimated 80 million users in the U.S. with some 60% or 48 million users between the ages of 16 and 24. While the TikTok base of users has historically skewed young, reports indicate that there is a shift occurring toward balancing its user base across a broader set of age groups. The user data makes it clear that TikTok has become a real competitor to Facebook and Instagram in the social media space.
Among the obvious opportunities for Walmart is mining TikTok’s user data to anticipate and identify trends. As the U.S.’s largest retailer, having insight into new trends in advance of its competition will help Walmart extend its retail leadership position.
Another clear path for Walmart is to take a page from Amazon’s playbook and build an advertising business around the TikTok experience. Quietly and methodically, Amazon has built a $15 to $20 billion advertising business. While building a similar-sized business at Walmart would only add a few points of growth to Walmart’s topline, those ad dollars would come at a more attractive profit margin.
As one of the investor notes we reviewed about the deal pointed out if you see something in a TikTok video that you think belongs in your house or apartment, the potential to click and buy it from Walmart represents a substantial opportunity. This could involve anything really — food and beverage items, furniture, clothing. The list is almost endless.
Putting Rivals on Notice
Whatever you think of Walmart or TikTok, combining these two giants, each with massive scale, puts other major retail and social media brands on notice. Think Target and Snap. While we’re at it, think Amazon. Back in January, an article ran in Forbes titled “Amazon Vs. Walmart: The Next Decade Will Decide Which Comes Out On Top.” The piece ended with this statement.
“The decade ahead will thus not see Walmart surpassed without a good fight. Doug McMillon has proven to be an effective, competent, and most of all well-grounded leader at Walmart. Jeff Bezos is undoubtedly one of the most visionary business leaders of the 21st century. Their clash will undoubtedly decide the shape of retail in the next decade.”
With the TikTok deal, Walmart has added considerable firepower to its arsenal.