Apple vs. Walmart: The Storm Is Gathering

In April of 2003 Apple had just opened its iTunes Music Store as it began its experiment to see if consumers really would buy music online. The experiment worked, and by 2004 Apple had gone from having zero market-share to being the 14th largest music reseller. The following year Apple reached the number 7 position on that list. The full list by the way is here:

1. Wal-Mart
2. Best Buy
3. Target
4. Amazon.com
5. FYE
6. Circuit City
7. Apple\iTunes
8. Tower Records
9. Sam Goody
10. Borders  

The biggest reseller, by far, is Wal-Mart, who controls the lion’s share of music sales and thus holds considerable clout within the music industry. But things are changing. Remember that as of February 2006, the iTMS had sold over 1 billion songs. And that means that Apple controls more than 80% of the total online digital music sales. This gives it a good deal of bargaining power as well because more and more people are coming over to the idea that the future is digital. And now we hear rumors that Apple is looking into selling movies as well as music.

That particular idea has caused quite a stir over at Wal-Mart because the list of top DVD resellers looks very much like the list of top CD resellers. Wal-Mart is on top followed by Best Buy, Target and Amazon. And here Apple comes wanting to join the party and possibly steal profits away from the leader.

Now, Wal-Mart has two main problems. The first is that the industry is moving (slowly) towards the model of online sales and away from brick and mortar stores. And the second is that while Wal-Mart has a commanding lead in the former, they have no real presence in the latter. Anyone know someone who bought a song off of Wal-Mart’s online store? Me neither. And in the same way that Walmart missed the boat for music it looks like it is going to be too late for movies as well.

However, I don’t expect Wal-Mart to lose billions of dollars in revenue simply because Apple decided to enter the fray. I expect Wal-Mart to create its own, second rate, Window’s only, movie service. I also expect it to vigorously market media players that compete with the iPod. I don’t think it will do much good in the long run, but what other choice does the company have?

Apple won’t be climbing into the number one spot for music or movies any time soon. However, in two years time I expect Apple to be the #3 reseller of music and somewhere near the bottom of the top 10 (think 8 or 9) movie resellers. How the traditional stores will compete is anyone’s guess, but things could turn ugly if Wal-Mart looks to Microsoft as its savior. Who knows, in 2 or 3 years maybe Zune will be ready for release and then the marketing war can begin in earnest.