Walmart Wants to Take On Amazon in Digital Advertising

The ongoing showdown between legacy retailers and digital sellers is best exemplified by the growing rivalry between Walmart (NYSE: WMT) and Amazon.com (NASDAQ: AMZN). The former is the world's largest brick-and-mortar retailer, while the latter is the world's e-commerce leader.

That's not to say either company is staying in its respective wheelhouse. Walmart has made a significant push in recent years to develop its online business, and Amazon has turned heads with its move to open an increasing number of physical locations.

It seems that at every turn, the two companies are butting heads and finding new ways to compete. Now the struggle has moved to advertising.

Image source: Getty Images.

Morphing its ad capabilities

Walmart recently acquired Polymorph Labs, a start-up focused on managing digital advertising. This comes in the wake of Walmart's decision to leverage its customer data to provide more relevant ads. In the press release to announce the acquisition, Walmart said:

This isn't the first move Walmart has made to better compete with Amazon and others in the realm of advertising.

Earlier this year, Walmart consolidated the advertising departments of its e-commerce unit and its physical stores in an effort to increase the profitability of its ad business. By combining the ad teams into one integrated unit, the company's ad suppliers can manage both online and in-store advertising with one contact. Walmart also decided to bring its online ad sales in house, in effect cutting out the middle man.

Walmart Chief Merchandising Officer Steve Bratspies detailed the company's intentions. "We have a unique opportunity to leverage our first-party shopping data from online and offline purchases to reach our customers and influence their purchase decisions," he said.

It all "ads" up

Amazon has increasingly focused on its advertising business in recent years, and those efforts are paying off. Ad revenue jumped 95% year over year in the fourth quarter to $3.4 billion, and it grew 117% in 2018, topping $10 billion. The company started with product advertising on its e-commerce website, and all of its revenue growth came from promoting products on its site, but the number of ads it can place is limited.

The e-commerce giant has recently made other moves to leverage its growing advertising business by creating entirely new destinations to sell its advertising. Early this year, Amazon debuted Freedive, a free, ad-supported streaming video service from its wholly-owned subsidiary IMDb (Internet Movie Database), which significantly expands the company's opportunity to place ads.

This may just be the beginning. Amazon is planning to launch a free, ad-supported music service, according to a report by Billboard. That service could debut as early as next week, giving Amazon an entirely new avenue for its advertising ambitions.

Historically, radio and television were the most effective ways to reach consumers en masse, but the entertainment landscape is changing, with consumers dumping traditional broadcast television and radio for their digital counterparts. By providing ad-supported streaming options in both video and music, Amazon stands to increase its advertising opportunity on a massive scale.

Image source: Getty Images.

The rivalry continues

Looking back several years, many had given up Walmart for dead, as the company was late to develop a comprehensive e-commerce strategy. Walmart has taken big risks to close the gap, including its $3.3 billion purchase of Jet.com in 2016 and a host of smaller acquisitions in the space.

Amazon's move up the ranks in online advertising is unprecedented, as the company became the third-largest digital ad platform in the U.S. late last year. Walmart isn't waiting around this time, and it's consolidating its position to better compete with the e-commerce juggernaut.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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