On July 23rd, Walmart announced that it has completed an acquisition of Chinese ecommerce giant Yihaodian. Walmart, who had previously acquired 51 percent of the company’s shares, plans to invest in both accelerating e-commerce and creating a seamless experience for customers across online, mobile and brick-and-mortar stores, according to a statement.
While a partial acquisition of a Chinese e-commerce brand may seem like no big deal for one of America’s largest global retailers, Walmart’s purchase is just the latest in a list of activities that are telling of a coordinated strategy, with designs on speeding globalization, growing product supply and lowering prices, all without sacrificing customer experience. The strategy involves a series of engineering innovations, a unified marketing technology office and smart technology selection.
Through Walmart Labs–the company’s IT innovation center–ecommerce engineering leaders have been unveiling this strategy in pieces. While combing through their past innovations and reading them alongside interviews with marketing and business leaders from the organization, some lessons began to emerge.
Here are just a few of the lessons we have learned from Walmart’s big tech bets:
Build To Scale To Avoid Technical Debt
Walmart’s decision to move to a more aligned digital transformation strategy was not taken lightly. Company brass have watched in horror as the company began trailing in digital sales to competitors like Target, who grew its mobile internet sales by 40% in 2014 on the strength of apps and other mobile shopping innovations.
Walmart watched as their biggest strength became their biggest weakness. Low prices, driven by high inventory is a strategy that made Walmart who they are. The magic of this strategy was in the company’s ability to seamlessly add new suppliers to their shelves without breaking a sweat. But as most U.S. purchases now begin online, customers are demanding a better customer experience at all touchpoints. Suddenly, Walmart’s efficiency in brick-and-mortar–supply chain, manpower, shelf space, location–became a liability when their digital store was not able to keep up.
“For traditional businesses, growing in size means that economies of scale kick in, leading to lower per-unit costs. On the retail side, Walmart has always enjoyed these cost savings, which we’ve passed down to our customers in the form of our trademark “everyday low prices,” Amandeep Juneja, senior director of cloud operations and engineering said in a blog post last February. “But when it comes to technology, things aren’t so simple. As a company’s technology footprint increases, the expansion can lead to “diseconomies of scale,” meaning the cost per transaction actually goes up. The cost of doing business goes up, and having more users is actually bad for business.”
The concept Mr. Juneja describes is called Technical Debt. This issue can balloon IT costs as engineers struggle to untangle years of bad data architecture and bad infrastructure.
At this point, Walmart had options. They could have kept a partial stake in Yihaodian, offered support to improve performance on the company’s existing technology, focused on a bit of rebranding and moved on. But with their eyes on more global product lines entering their ecosystem in the future, Walmart played the long game and decided to hand the reins over to IT for assistance meeting business goals. They needed to scale up. And fast.
To combat this common problem, Walmart selected OpenStack and implemented an open-source cloud strategy that they could use to innovate and scale. With OpenStack, engineers hope to achieve the following:
1) Using open source means they avoid long-term lock-ins with any single, private vendor. This works well for a company of Walmart’s size and resources. For smaller businesses, there are many fully-supported Open Souce platforms and tools (Acquia, HippoCMS, Varnish) to be excited about.
2) They are able to modify cloud software to meet their needs as they grow.
3) OpenStack has a true community around it. Vetting the open source community should be a part of the technology selection process for any company considering open source.
4) Application developers are able to rapidly build applications for mobile, RestFul APIs, etc.
Technology Decisions Power Marketing Goals When Content & Commerce Meet
One of the biggest lessons we have learned from watching Walmart Labs evolve is the way technology and engineering can become business differentiators, creating unique opportunities to further business goals. When these benefits are not just unintended consequences, but come with business strategy behind them, companies can meet objectives, compete and innovate, sometimes even creating new revenue streams in the process.
Walmart did this in two ways.
The first was a plan to increase efficiency when bringing new products to their digital shelves. Because customers are using the web to comparison shop more than ever, product descriptions and specs have to be consistent, from the supplier to Walmart, and be on par or better with other retailers.
One way they do this is through the Product Content Collection System (PCCS). This is a system that will facilitate a supplier sending their catalog directly to Walmart. This system is not unique. The Global Data Sync Network (GDSN), an industry standard, provides specs for uploading and transferring this data for those in the network. But as Walmart expands, they want to be able to do this for companies (smaller, mid-sized, or foreign retailers) who may not be in the GDSN. This allows Walmart to expand their product line, win the supply chain battle (as they have always done) and continue to offer the lowest prices, no matter where their customers shop from.
The second innovation created a new revenue stream, allowing Walmart to use the huge supplies of customer data they have collected to help their suppliers more effectively serve ads and other content to customers. They call the initiative The Walmart Exchange. Introduced last year, the program seeks to provide data insights to its partners to better serve ad, search and social media content and, in some instances, buying that content from its suppliers. As the creation of PCCS is helping them to win on price, Walmart is using its data to create a megaphone, as loud as its inventory is large, to drive advertising to the right customer at the right time, across channels.
Business and IT Alignment Sets Foundations For A Shift From Raw Ecommerce To A Hybrid Model
As we have watched Walmart’s marketing technology office evolve over time, we have seen a concerted effort to align marketing and IT, with eyes firmly fixed on the future. Walmart has strategically hired, innovated and aligned in an effort to make content and commerce a central focus of their brand strategy.
A few key developments show us their goals for the future:
1) Walmart has been using the Ektron CMS platform to power its intranet for years. But with Episerver’s recent acquisition of Ektron, Walmart now appears atop the Episerver client roster and some have speculated that Walmart may move toward broader usage of a full-fledged CMS for site content as well. The stated goal of the merger, according to Ektron, is to create a “digital experience cloud [that] combines content, commerce, and connectivity to empower organizations to succeed in digital transformation.”
2) Dollars are on the move. Walmart recently revealed plans to invest between $1.2 to $1.5 billion in its ecommerce and digital operations for fiscal-year 2016. In a recent interview, VP of marketing for Walmart.com Brian Monahan stated that, among the big initiatives were personalization of content, apps for grocery shopping and enhancements to the current shopping app to add a “store mode” so customers can be led straight to deals within their local store.
3) The marketing team is getting a digital upgrade. Wanda Young, who was the retailer’s chief digital executive, recently had her duties expanded to oversee media too as VP-media and digital marketing, a move to recognize the growing role digital has in steering the entire marketing effort.
The “So-What” Of It All
These are massive changes in strategy that even Monahan has admitted would not be possible without Walmart Labs, an engineering team now numbering over 100, at times acquiring new technologies and building software systems entirely in-house. But that shouldn’t stop you from bringing these same principles to your organization.
1) Outsource your own “Lab”. Many organizations struggle to find and retain the engineering talent. Kanban is among a group of technology focused consultancies that can be tapped to amp up your own capabilities. According to one Forrester study, 85% of organizations rely on external vendors for content and experience management.
2) Align Content Strategy with Commerce. Start by having a written content strategy, with buy-in from all key stakeholders. Make sure your content strategy includes key steps in the customer journey. Then, map this content strategy to your commerce strategy, as well as the technologies involved. Many organizations are held back with large gaps between required business capabilities and technology roadmaps.
3) Consider open-source. Selecting fully-supported, enterprise-ready, open-source technologies can give you the value of open source without the risk. In almost every technology category, open-source plus vendor support models are on the rise.
For more information on how to get started, check out our Oreo Whitepaper, which contains a Content Maturity Model or read our case study on Content and Commerce Unification. Two great steps on the road to an aligned content and commerce strategy that will future-proof your content-rich experiences.