Tuesday, September 05, 2006

Super Companies Collide: May the Most Innovative Win

Wal-Mart has come under a lot of scrutiny for the way it puts many smaller companies out of business when they are unable to compete with Wal-Mart’s infamous low prices. Therefore, it might seem amusing to some when Wal-Mart needs to retreat for a short time to be on the defensive after a company invades a niche of the retail market that they have dominated and bullied many companies out of.

So, who is this David that is pushing the Goliath of the retail industry back on its feet? The answer is Apple, who is going to start offering movie downloads that customers can get off of iTunes. In response, Wal-Mart has appointed David Porter to visit all of the big studios to dissuade their participation in Apple’s new venture so Wal-Mart can protect their title as the largest seller of DVDs and still “account for roughly 40% of the $17 billion in DVDs that will be sold this year.”

Is meeting with studios enough to stay competitive though? Although Wal-Mart and Apple engage in healthy competition in music sales, Apple’s new innovative path will make it mandatory for Wal-Mart to act with extreme measures if it wants to continue to dominate the DVD retail market and keep up with Apple’s new and continually improving technology.

Ever since Apple created the iPod and iTunes, it has been a game of catch-up for Wal-Mart to stay competitive. In December of 2003, Wal-Mart created its own online music store with walmart.com which offers music downloads in a Microsoft format to compete with Apple’s iTunes. A little more than a year later, Wal-Mart and Apple became retail partners when Wal-Mart started to sell the iPod Mini in its stores. Now, more than a year and a half after this partnership, Apple is threatening to take away a large market share of retail movies. If Apple is successful in signing all of the major studios, they will have such an advantage because they will be getting movies for a $14 wholesale price when Wal-Mart currently gets DVDs for a $17 wholesale price. Wal-Mart’s slogan of “Always Low Prices, Always,” isn’t going to help them in this situation because they don’t have the lowest prices to offer their customers.

Wal-Mart needs to take action in order to retain its dominance of the movie retail market. Even though Apple has only signed Disney on to this new business venture, there are other major studios teetering on the wire waiting to see what action their competitors take. Because of this, Wal-Mart should continue to meet with all of the studios to dissuade them and even threaten to stop carrying their DVDs if they decide to follow Disney to Apple’s new age of movie purchasing. But there is still more that needs to be done. Wal-Mart should also add on to their own website to enable customers to purchase movie downloads. Wal-Mart has also expressed to studios that it “wants marketing help when it launches its own planned download site.” This is a positive step because when Wal-Mart launches the addition to their music downloading site, they will still be behind due to the delayed response. As a result of this, Wal-Mart is going to need all of the marketing help it can get in order to stay competitive in the online movie market.

Ultimately, Wal-Mart will need to be the innovator if it wants to get an extra leg up on the new competition. However, since Wal-Mart is not a technology company, for now it is going to need to lower prices and follow the lead of Apple in order to stay competitive in the movie retail industry.


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