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The Wisdom Behind Wal-Mart’s $300 Million Social Media Investment

Written by Evan Schuman
April 21st, 2011

When Wal-Mart dropped some $300 million on Monday (April 18) buying a Silicon Valley social media startup, the very act showed an appreciation for social media that few retailers have demonstrated. But what the world’s largest retailer does with that investment over the next 6 to 12 months will reveal whether Bentonville has truly figured out social media or just sees it as fashionable fad to dump cash into.

Retailers can deal with social media in three ways. The first choice is that they can create their own area where they try and attract shoppers and say tons of great stuff about themselves. Let’s call that the Commercial approach. Second, they can get lots of people to visit big, established social sites (Twitter, Facebook, YouTube, etc.), where they can casually say lots of nice stuff about the retailer. This would be the Viral approach.

The third way is to shut-up and studiously watch what everyone is saying, from every corner of social media. That’s the Winning approach—and it’s what Wal-Mart seems to be doing with its acquisition—because the first chain that masters hearing what those folk are all saying will have the keys to the most profitable merchandising and marketing decisions ever.

The level of investment—$300+ million—is significant. For the record, Wal-Mart did not announce how much it paid for its research prey (Hey! The name is Kosmix, OK?). That “more than $300 million” pricetag was determined by one of The Wall Street Journal‘s most reliable determiners of such stats (Kara Swisher), and we’ve historically always found her figures to hold up. Even for Wal-Mart, anything costing more than $300 million is a very serious decision.

Kosmix brings with it its three sites: TweetBeat, which the company called a “real-time social media filter for live events”; Kosmix.com, which indexes content by topics; and RightHealth, a health/medical site. But mostly it brings an approach to trying to listen to social discussions.

In a blog post on the Kosmix site by founders Venky Harinarayan and Anand Rajaraman, they tried to put their social view into context. “Quite a few of us at Kosmix have backgrounds in E-Commerce, having worked at companies such as Amazon.com and eBay. As we worked on the Social Genome platform, it became apparent to us that this platform could transform E-Commerce by providing an unprecedented level of understanding about customers and products, going well beyond purchase data,” they wrote. “The Social Genome enables us to take search, personalization and recommendations to the next level.”

One of the interesting aspects of social that few retailers have internalized yet is its huge influence on E-Commerce, M-Commerce and, absolutely, in-store. This is something that many analyst firms miss, because if something can’t be quantified by direct purchases or by direct purchase referrals, then it clearly couldn’t possibly exist.

In reality, it’s the absence of that direct-purchase capability that is what makes social such a powerful influencer of purchases.


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