In February 2024, an acquisition news shocked the American advertising industry - retail giant Wal Mart bought Vizio, a smart TV manufacturer, at a price of about 2.3 billion dollars.
This means that Wal Mart has opened a new front in the fight against Amazon.
Vizio is one of the best-selling TV brands in Wal Mart stores. In North America, its market position was once comparable to that of Samsung. But what Wal Mart values is not its hardware business, but the TV operating system SmartCast owned by Vizio and the huge network TV advertising business behind it.
As Wal Mart described, "This merger will further accelerate Wal Mart's media business Walmart Connect in the United States, and combine Vizio's advertising solutions with Wal Mart's influence." This will add weight to the competition between Wal Mart and Amazon's retail media advertising business, and even change the pattern of streaming media advertising.
01 Drunken Weng's intention in advertising
Vizio, a television manufacturer founded in 2002.
At the beginning of its establishment, Vizio defeated established competitors such as Samsung and LG through aggressive price wars and quickly became the largest television brand in North America. Vizio outsources the entire production and operation, with a relatively meager profit margin. According to the company's prospectus released in 2015, its gross profit margin for TV sales was only 7%.
In 2016, Vizio received a bid of $2 billion from LeEco, founded by Jia Yueting. So Vizio cancelled the IPO plan. Unfortunately, as LeEco fell into financial crisis, the acquisition of Vizio was aborted.
In 2021, Vizio was officially launched. But at this point, Vizio was facing cheap televisions produced by Chinese manufacturers such as Hisense and TCL, and Vizio's title as the "king of cheap televisions" was no longer sustainable. As the epidemic further puts pressure on Vizio's business, Vizio's hardware profit margin has completely disappeared. The financial report shows that in the first nine months of 2023, Vizio will lose about $0.45 for every TV sold to consumers.
However, Vizio has been compensating for hardware losses through its growing advertising and service business. In addition to advertising on its free streaming services, Vizio also earns a certain percentage of advertising revenue from applications running on its smart TV. Vizio also has a WatchFree+channel, which is free to users and generates revenue through advertising. In the first nine months of 2023, advertising and services generated nearly $260 million in gross profit for Vizio.
Therefore, what Wal Mart really pursues in this transaction is advertising revenue, not hardware sales.
The financial report shows that the active accounts of Vizio's smart TV operating system SmartCast have exceeded 18 million, an increase of about 400% since 2018. These 18 million active accounts can reach millions of households. Once Wal Mart has Vizio, it means that it can use SmartCast to attract more consumers through TV advertising. Of course, Wal Mart's goal may not only be to provide more ways for brands to advertise to consumers, but also to learn more about consumer interest data, such as people's length of stay and viewing habits.
Wal Mart has always attached great importance to online TV advertising. In 2023, Wal Mart will cooperate with Innovid to launch personalized advertisements on TV. Previously, it also cooperated with Roku to launch "Shopable Advertisements", allowing consumers to buy Wal Mart products directly from TV.
Neil Saunders, retail analyst of GlobalData Retail, said that this has given Wal Mart greater influence in the advertising field and helped it compete with Amazon and other companies.
So why is Wal Mart so keen to develop its advertising business?
As we all know, Wal Mart's main business is retail, which accounts for more than half of Wal Mart's total sales, but the retail profit is quite small. In recent years, Wal Mart has also invested billions of dollars in building digital businesses, which have reduced profits in order to be more competitive. The advertising industry is clearly a higher profit margin industry.
Wal Mart began to develop its advertising business very early, but the current share of advertising business is still relatively small. In the 2024 fiscal year ending in January, Wal Mart's comprehensive revenue reached $648.1 billion, while its advertising revenue was only $3.4 billion, accounting for only about 2% of its total revenue despite a year-on-year increase of about 28%. Compared to its competitor Amazon, Amazon's advertising revenue in 2023 was close to $47 billion, accounting for approximately 15% of its total sales.
02 Ambitious Wal Mart
In 2021, Wal Mart will rename its media group Walmart Connect, and expects that Walmart Connect will become one of the largest advertising platforms in the world within five years.
Wal Mart has a lot of confidence. Offline, Wal Mart has more than 4700 stores in the United States, and about 150 million customers visit here every week. 90% of these people purchase for families. On line, Wal Mart has more than 29 million members. Globally, about 240 million customers visit about 10500 stores and many commercial websites of Wal Mart in 19 countries/regions every week.
In more than 4700 stores in the United States, Wal Mart has installed about 170000 digital televisions and automatic checkout machines. Brands can display advertisements on these screens to promote their products. In addition, brands can also launch product trial promotions in Wal Mart stores to attract potential customers. Walmart Connect is also exploring other in store advertising opportunities, such as providing advertising space at regular free movie events and Halloween events.
Online, brands can reach consumers through various channels such as Walmart. com, Walmart, and its pickup and delivery services. Overall, Walmart Connect can provide search advertising, display advertising, in store advertising, brand interactive advertising, and more.
In addition to providing advertising space in Wal Mart's own digital and physical channels, Walmart Connect also allows brands to use a large number of first party data to improve the advertising effect on external websites. This is achieved through the Walmart Connect Demand Side Platform (DSP), which allows brands to promote products on social media platforms such as TikTok and Snapchat.
It can be said that Wal Mart tries to raise the retail media to a new level, because no platform can connect online and in store activities on a large scale like Wal Mart.
Retail media advertising is becoming increasingly crucial for the survival and development of retailers. Amazon has become the third largest advertising company after Google and Facebook, and other retailers such as Kroger, Best Buy, and Target are also establishing their own advertising businesses. In March 2023, Best Buy collaborated with Roku to utilize Best Buy's first party shopper data to help advertisers improve their online television advertising.
Seth Dallaire, chief closing officer of Wal Mart, said in a statement that the company believes that the combination of Vizio and its media business Walmart Connect "will have a profound impact because we have redefined the intersection of retail and entertainment."
As Wal Mart seeks to develop its ecosystem, especially after Walmart Connect is further linked with its membership system Walmart+, Wal Mart will become one of the advertising platforms that can not be ignored.
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