Walmart’s bid to buy the US operations of TikTok with Microsoft came as a surprise, to say the least. Why would the largest retailer in the US—a company that has flourished by selling Americans necessities such as groceries and toilet paper—want a piece of an app known for short videos of teens dancing?
It’s unclear exactly what the costs would be or how Walmart and Microsoft would split ownership. But we do know what Walmart is hoping to achieve: In a statement, the company said TikTok could help it increase its advertising business and broaden the third-party marketplace it has been investing in, part of a wider effort to finally turn a profit from e-commerce.
Walmart hasn’t offered any concrete details about how it would work with TikTok, but after news of its bid broke, analysts at investment firms UBS, Cowen, and Bank of America agreed in their respective research notes that the move could help Walmart build out its network of independent vendors. TikTok has begun introducing features that let users link out to products; as an owner, Walmart could integrate more in-app functions and let its marketplace sellers easily set up shop on TikTok as well.
In that regard, the retail giant appears to believe it might replicate how TikTok works in China, where the app’s creator, ByteDance, is based. There the app is called Douyin, and shopping on it is common. In its statement Walmart said it sees opportunity in how “TikTok has integrated e-commerce and advertising capabilities in other markets.”
Except the US doesn’t much resemble the other markets where e-commerce is thriving on TikTok. In countries like China and South Korea, the retail landscape looks very different. E-commerce is more advanced, there is less physical retail space, and phones are the main way shoppers buy online. Apps such as Pinduoduo and WeChat that combine social media, shopping, and other functions are common. “Social commerce is just woven into everything,” says Doug Stephens, founder of consultancy Retail Prophet. Market research firm eMarketer estimates that Chinese shoppers will spend $242 billion on social commerce channels this year, continuing their rapid growth.
By contrast, in the US companies and consumers often keep social media distinct from shopping, and social commerce has been slow to catch on. “The idea has been around for years, but never really gained much traction,” Debra Aho Williamson, eMarketer’s principal analyst, said in a report earlier this year.
That’s just beginning to change after last year’s launch of Instagram Checkout, which finally allowed shoppers to buy through Instagram without leaving the app. But such advances are only a start. “Even with these gains, we don’t think social media will suddenly become a massive conduit to purchasing in 2020,” eMarketer said.
TikTok’s advertising business
Sucharita Kodali, an e-commerce and retail analyst at research firm Forrester, says it’s time that users are spending on TikTok, not cash. “If you can figure out a way to make money off of that, more power to you,” she says. “But that’s what you’re buying.”
So far, the most reliable way to monetize consumers’ time is through advertising. And in Kodali’s view, the more compelling case for Walmart acquiring TikTok is to fuel its own fledgling ad business.
Google and Facebook, which owns Instagram, dominate the digital advertising market. Amazon, however, has been making inroads as retailers attract more ad dollars. Walmart has its own nascent advertising platform, and a rapidly growing social network like TikTok could give it a powerful new income stream as brands rush to grab the attention of TikTok’s 49 million daily users.
It could make Walmart a major new competitor for digital advertising dollars. “That helps to pivot the company into a much more profitable channel that’s much more scalable than physical retail—which, by the way, is taking a page out of Amazon’s playbook,” Kodali says.
Advertising might not be the only page Walmart borrows from mega-retailers’ books. “Whether it’s Amazon, Alibaba, or JD.com, when you look at the galaxy of businesses they put together into their overall platform, all of them include media and entertainment,” says Stephens at Retail Prophet. “This is the one thing Walmart doesn’t have, and I believe that Walmart recognizes that its future is going to be through evolving into a major international mega-marketplace.”
Stephens points to Amazon Prime’s video streaming, Alibaba’s movie division, and JD.com’s entertainment offerings. Walmart’s coming membership program, Walmart+, is said to include video and entertainment.
What Walmart could learn from TikTok
It’s possible TikTok isn’t even Walmart’s real target, but rather a means to an end. When Walmart bought online retailer Jet.com for $3.3 billion in 2016, it wasn’t entirely clear how the company would use it. Ultimately Walmart learned from the site as a way to build out its own e-commerce operations, which proved a successful strategy. No longer in need of the Jet.com property itself, Walmart announced this year that it was shutting it down.
The company could be pursuing a similar line of thinking with TikTok. It may present an opportunity to gather data and insights on social media as it plans for the future, which will also see TikTok’s users begin to spend more money as they enter the workforce.
If Walmart does ultimately become a joint owner of TikTok—and that’s still a very big if—it’s taking a chance on the app’s future, too. In a January report, eMarketer forecast that TikTok would see a lot of activity in 2020 but said it was “somewhat skeptical of how long the craze will last in the US.” A third of TikTok’s users may be 14 or younger, according to internal documents seen by the New York Times. That demographic can be fickle. Just look at Facebook.
“TikTok could be just a really expensive flash in the pan that they’re buying,” Kodali says.
Walmart is in a position to take risks though. Its sales have surged during the pandemic as it became indispensable to more shoppers, including many buying online. Companies that use periods of turmoil to invest in the future can emerge stronger, and Walmart didn’t become the giant it is by playing it safe all the time.