Walmart (NYSE:WMT) is arguably the most tightfisted retail chain in the world, constantly driving out costs any way it can. So why is the world's largest retailer now focused on building its own technology instead of buying it off the shelf? According to the chain's e-commerce chief, that's the only way it can get a competitive advantage from the technology.
"We can't do what we need to do and want to do with off-the-shelf solutions," said Neil Ashe, Walmart president and CEO of global e-commerce, speaking at a Barclay's-sponsored retail conference in New York last week
. The chain made the decision to insource its IT development last year, and it has opened or expanded three technology centers in the past 18 months near San Francisco, Bangalore and Sao Paulo, Brazil.
One of the first big projects to come from the insourcing is a proprietary search engine that has tighter integration with local stores. With it, Walmart will be able to continuously customize its search without having to wait for outsiders to develop the features it wants. The chain is also beefing up its CRM capabilities.
There's a longstanding tension between buying and building tech in retail, and it isn't limited to e-commerce or software. Buying industry-standard products is easier and typically cheaper, but all your competitors can buy exactly the same thing, so there's no competitive advantage. On the other hand, building it yourself gives you an advantage—plus all the problems that come with being the first tester of your own technology.
That means Walmart is leaving behind the majority of retailers, but joining Kroger (NYSE:KR), which built its own checkout system that automatically scans groceries; JCPenney (NYSE:JCP), which designed its own giant in-store e-commerce kiosks; and Home Depot (NYSE:HD) which went with a custom handheld device for associates instead of an iPod—not to mention Amazon (NASDAQ:AMZN), which builds its own warehouse robots (and pretty much everything else it uses).
But Walmart is also the primary driver behind a technology project it hopes to get a major advantage from, even as it hopes lots of other retailers will also adopt it. That's the MCX payment system, which the chain believes will give it leverage over conventional payment-card brands Visa and MasterCard, so it can cut the cost of each transaction. Building your own search engine is nice, but breaking the stranglehold of the card brands would really make do-it-yourself development worth the trouble.