Walmart tries some e-commerce Vudu

Retail Walmart’s integration of Vudu into Walmart.com could help propel the online movie service the retailer bought 18 months ago into the first ranks of digital VOD providers, alongside Apple’s iTunes, Microsoft’s Xbox Live and Amazon VOD. Walmart’s web site gets over 5 million visits a day from shoppers, giving Vudu a high-profile platform on which to build up its user base. But there’s likely more behind the move than merely ramping up Vudu’s VOD business.

Despite its dominance of the brick-and-mortar retail world, Walmart has struggled to develop its e-commerce business. According to analysts surveyed by Bloomberg, Walmart.com does about $6 billion a year in revenue, less than 2 percent of the retailers’ total sales. By contrast, Amazon.com does over $34 billion in sales.

So long as its brick-and-mortar business continued to grow, the relatively small contribution from e-commerce was not a big problem for the chain. But with SuperCenters reaching saturation in the U.S., Walmart’s failure to developed its e-commerce business has become more glaring.

Lately, however, the company has been trying to make up for lost time. It named a new head of its online division in June 2010 and recently started @WalmartLabs, an in-house digital R&D center headed by two Silicon Valley veterans. It also bought an online merchant in China and has been experimenting with home delivery of groceries bought online in a few markets.

It’s also where Vudu likely comes in.

Historically, home video has been a very effective traffic-driver for Walmart and the retailer has always used the category strategically. At the peak of the DVD market, the average ring for a customer who bought a DVD at Walmart was somewhere around $75. If Toy Story or Harry Potter them in the door, Walmart could be pretty certain of selling them something else while they were there, usually at much fatter profit margins than its heavily discounted DVDs or videocassettes.

The fall-off in the DVD business, therefore, has hit Walmart doubly hard. Not only has it meant fewer DVD sales for the retailer, but it is less able to leverage DVD sales into bigger cash-register rings and bigger margins.

Given the strategic value the home video category historically has had for Walmart, the integration of Vudu into Walmart.com is likely to be as much about leveraging the VOD service to build up the retailer’s overall e-commerce operation as it is about building up Vudu’s VOD business.

It also means that the competitors most threatened by Vudu’s new platform may not be Apple and Netflix but Amazon and EBay. If Walmart.com is able to leverage VOD as effectively as Wal-Mart stores leveraged DVDs, it could drive a lot of e-commerce across a lot of other product categories.

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