Ordinary Times regular contributors Mark Kruger and Andrew Donaldson enjoy bantering on Twitter (if you aren’t already following, their handles are @musepolsci and @four4thefire, respectively.) Recently, they butted heads over a story in Fortune about Walmart’s intention to launch an on-line streaming video service. Andrew contends that Walmart cannot gain a foothold in a crowded field; Mark contends they have a shot at success. Rather than come to blows or send mean spirited memes at each other featuring Darth Vader and Scarlett Johansson locked in a death match (“I call Scarlet – don’t judge me,”- Mark), they have written opinion pieces laying out each of their views. Enjoy, and leave your take in the comments.

Mark’s Thesis

Walmart will compete in the streaming marketplace because they can take advantage of a chaotic customer and content landscape, they have clout with their customer base, and they have the chops for the engineering side of the effort.

Smiley Guy Success

Why does Walmart have a chance to succeed? First, the “pay to play” reason – resources. They have more money than a small country and their core business is recession resistant. They can purchase content and studios (they already own “Vudu”), run marketing campaigns to almost any scale, and build out infrastructure to meet any level of foreseeable demand. Investing a few billion in a streaming service will not appreciably affect the bottom line. But of course, money is the only the first barrier. What else is in play?

The Loyalty Landscape is Shifting

The story clearly pits Walmart against NetFlix and Amazon, but that is a shallow view of the consumer and runs behind the behavior of the public. This isn’t toothpaste. The choice is not either Netflix or Walmart; it’s Netflix and Walmart. Streaming has no cable hookup or dish to tune – no hardware barriers that force the consumer to choose. The vicious competition in pricing, and the ubiquity of screens has made it possible for consumers to be very fickle with streaming content. They flit in and out of various subscriptions like five year-olds deciding on ice cream flavors.

Unconvinced? This Forbe’s article shows that 43% of Netflix subscribers are also Amazon subscribers. 29% of US streaming consumers have used more than five streaming video services in the past 12 months. Indeed, only 17% (less than 1 in 5!) have stuck it out with only one service. And this especially makes sense once you abandon cable. I pay more than $200 per month for my cable service (again, don’t judge me). If I were prone to give up cable, I could save money and still subscribe to 4 or 5 (or more) video services. And when Westworld or Game of Thrones is over, I can drop HBO GO until the next time sexy robot dragons hit the screen.

The landscape is jumbled in other ways as well. Services like Sling, Roku, PS Vue, and YouTube are using “live tv” as a model (Netflix also has a service like this) rather than just libraries of shows and movies. Sports Networks, too, provide on-line options divorced from other content platforms. These services are really different things altogether. I’m not giving up my MLB.tv subscription just because Netflix has Bull Durham. Yet these services tend to get lumped together in our competition matrix. Walmart will find exploitable cracks in such a Wild West landscape.

Certainly I think they will have no problem getting folks to try it, given their competitive pricing. Do I think they will compete with Netflix directly from the start? Possibly – but it’s a long row to hoe. Netflix is the ubiquitous “general content” platform. Many people using or trying more than one service still have Netflix as a baseline. Switching is driven by content and price, but Netflix is the king of the “general” platform because they have the largest library and they are producing the most shows. They are also ahead on 4k content, meaning early adopters will stick with them. Meanwhile Starz, HBO, Hulu, Amazon, CBS, TBS et al are all working around the edges to carve out a bigger share without bleeding that revenue to Netflix. The content landscape is like the early days of cable as channels proliferated. It’s chaotic, it’s jumbled, and the barriers to entry are in flux. Chaos always means opportunity.

The Walmart Customer

There is also a customer story here. Walmart is a trusted brand to millions of people. This might rub some people the wrong way. There are arguments against the Walmart model based on labor and the preservation of a certain kind of retail. There’s a stereotype (mostly unfair) of Walmart shoppers as well. The fact remains that Walmart is the center of commerce and services for a huge swath of people who depend on low prices and broad inventory. People eat, get their car repaired, buy food, clothing, electronics, housewares, cosmetics and drugs – all in one place. On the way home they can do their banking, buy prescription glasses, get a hair cut and take home a roasted chicken, and all at low prices.

Folks who depend on Walmart may be enthusiastic about a Walmart streaming service – and Walmart will hasten to make it easy. They will likely provide non-traditional in-house payment options for example. This opens a demographic to Walmart streaming that may be missed by other services. They also have an opportunity to tailor content to folks who are under-served by Hollywood studios. If you are scratching your head at that comment, trust me, Walmart knows exactly what I mean.

Engineering Project

Finally, does a retailer have the engineering chops to pull this off? Walmart is a company with extremely low price points that achieves very high margins for a retailer. It does this in part by muscling suppliers into cutting their own margins to the bone. But it also takes advantage of one of the world’s most sophisticated inventory management systems. It’s a marvel of engineering rivaling NASA. Indeed, in spite of the “brick and mortar” nature of Walmart you might think of it as an inventory management company rather than a retailer. Having the right amount of everything on hand in all of its 11,000+ stores is its genius – and  the company does it astonishingly well.

While it may not seem like this translates into something as fuzzy-headed as building a virtual streaming platform, the truth is that streaming is a project scale problem – and Walmart knows about scale. They can handle a project of this size and, in my view, they will come up with some surprising innovations along the way.

For these reasons, I think Walmart streaming has a shot to compete. Now if you will excuse me, I have to eat this corn dog while this lady cuts my hair. You can’t get this kind of service at Whole Foods!

Andrew’s Thesis

Walmart will not be successful in competing in the streaming marketplace. The retail giant will be entering a market that is at near saturation, with no clear path to original content that would set it apart. Walmart is spending time, money, and energy on a windmill tilt when it should be focusing on the fundamentals of its core retail business, not competing with streamers that are in their element with digital content.

Walmart is entering a saturated marketplace

Let me qualify “not successful” as the idea of mounting a serious competitive challenge to Netflix and Amazon. The management in Bentonville and their engineering and data systems folks in Silicon Valley are too good for a total failure on the level of New Coke. But those lofty ambitions of streaming dominance should be tempered. Walmart finds itself entering a very crowded field, all vying for the same entertainment dollars.

Current reporting is that the new streaming service will be a part of-or a relaunch of-Walmart’s current Vudu service. Walmart has had success with the Vudu platform, which was designed as a “digital video library”, an online version of the old movie rental stores or Red Box. One of the features is allowing customers to convert their DVDs and Blu-rays to their digital shelf for a fee. But it is unclear how this current model will be folded, rebranded, or retooled into a streaming service.

The key to streaming service is content. Vudu transforming from an online Red Box and rising as a Netflix competitor depends on its ability to offer content, but where that content comes from is unclear. Hulu has ABC, NBC, and Fox locked up either by affiliation or contract, CBS is investing heavily in its CBS All-Access, and other networks such as Disney and their sports wing ESPN are looking at their own over-the-top services. Original content is the answer other streaming services have turned to. Amazon is spending $5 billion on original content, and Netflix may be spending as much as $13 Billion. To put that in a bit of perspective, if Walmart wanted to go that route, their reported free cash flow is $18 Billion. The money is there, but is the content for purchase, and for what price? It would be a huge investment with a long run before returning profit, a problem Netflix currently is working through. There might be an opening for the family friendly and faith-based programing that is rumored and would be on brand with Walmart’s core demographics, but that too would take considerable investment.

Also, we’ve seen this movie before. Back when Netflix was still moving DVD’s by mail, they had an ill-fated venture with Walmart, and it failed for reasons that sound all too familiar to the current situation, though written in the Washington Post in 2005:

It carried about half as many titles as Netflix and Blockbuster, and despite its claim of “always low prices,” Blockbuster offered cheaper subscriptions.

“Wal-Mart did not get into this business with the same vim and vigor” as its competitors, said industry analyst Dennis B. McAlpine of McAlpine Associates.

Compounding its also-ran status in the new business, Bentonville, Ark.-based Wal-Mart found that its online rentals failed to translate into more frequent trips to the store — a key part of Wal-Mart’s push into other online businesses.

Not as much of an offering, not focused, and didn’t increase store sales: ominous warnings that should be heeded. There is an argument to be made that a loyal customer base is a factor to consider, but even this is limited. Walmart needs more than just current shoppers to make its streaming foray competitive. For example, streaming just this past week overtook paid TV in the UK. Netflix, Amazon, and others have a presence there while Walmart does not. They can perhaps make money only on US domestic subscribers, but that will not help against competition that is already global.

Walmart is innovating outward when they need to renovate inwardly

Jeff Bezos has said from the beginning that Amazon is not a retail website; it’s a logistics company. What he first did with books, has now spread to just about anything you can think of being available at Amazon. Amazon Prime and the digital streaming content is part of the larger Amazon eco-system.

So, what does logistics have to with streaming video content? Everything, because logistics is where Walmart’s money is made. “The money is in the margins,” has been their profit model for nearly 50 years and to great success. When you take transportation and logistics college courses, it is the Walmart system that is taught as the standard.

But the logistics system that made them number one is now a hindrance to their online ambitions. The board and shareholders are going to have a short tolerance for the shiny new toy if it is seen as disruptive to the core business. Over the holiday period, the life blood of retailers that makes or breaks a fiscal year, fears manifested into fissures in the vaunted Walmart distribution system. The surge in gifts and promotions prioritized on the promise of immediate delivery, overwhelming the system designed to keep the constant selling items on the shelf with minimum delay. Simplified, the peak holiday shoppers were drowning out the day-to-day shoppers that are the pillar of retail. What works well on Amazon for promotions, and raised Walmart’s online sales as well, hurts the company’s bread and butter daily shoppers.

Walmart is attempting to rework their supply chain and distribution on the fly, but with 2 millon employees, 130 distribution centers, and tens of thousands of trucks and trailers, changing infrastructure and overhead is a herculean task their new streaming competitors do not have to face. Every dime spent on streaming service, online acquisitions like the $3.3 Billion Jet.com gamble, and so on is money not available for that vital task. Walmart online head Marc Lore might be trying to run the web side of things as a startup within the company, but shareholders and boards demand tangible results, and quickly with that type of outlay. Netflix, who came back from the death of DVD rental to dominate streaming, has emerged focused solely on being the streaming content provider of choice to many without such overhead to deal with. Amazon is building their own logistics network from the ground up to meet their specific needs with startling innovation in warehousing and distribution systems. Walmart is a behemoth, but when it comes to digital streaming and online, they are an oil tanker in a speed boat race. Turnaround will not be quick.

Walmart, for the first time in a generation, is the underdog

Set aside all the data, all the money, and all the business discussion for a moment: If I tell you there is to be a fight and you can either back the younger, stronger, hungrier fighter who is trained specifically in the style for this one fight or the older, slower, fighter who has to learn a new style to compete, the choice is clear. While the streaming wars to come will pit Walmart against their primary foe of Amazon on a new front, there are many others in that sphere. At the same time, they are trying to retain frugal buyers of general goods not just from Amazon but the Targets, Dollar Generals, and Family Dollars of the world. They are trying to maintain their grocery business, key to their current strategy, against not just the Aldis, Foodlions, Ralphs, Albertsons, and the like, but also Amazon and others probing online grocery ordering and delivery. Walmart rose by being almost all things to all people. If Bentonville is not very careful, Mr. Sam’s company may fall the same way.