Walmart just fired a big AI shot across Amazon’s bow

Walmart has announced that it is partnering with OpenAI to enable shopping directly through ChatGPT. From this fall according to BloombergChatGPT users can purchase almost all of Walmart’s product line, i.e. apparel, entertainment, packaged food, and even products from third-party sellers (the only exception is fresh food), directly through a buy button without ever leaving the chat interface. Even someone’s Walmart or Sam’s Club account is automatically linked.

It’s an idea that’s seamless, convenient and potentially great for consumers. It’s also one that’s a direct attack on Amazon’s dominance in e-commerce.

Enter the marketplace of marketplaces

This is where things start to get interesting. What OpenAI creates with ChatGPT is what I would call the “marketplace of marketplaces.” Walmart is smart to tap into it because it hits Amazon right where it hurts.

Search.

Before ChatGPT, commercial searches were a race between two horses: Google and Amazon. In 2023, or before AI, according to eMarketerSomewhere between 50% and 60% of consumers started their product searches through Amazon or through search engines (such as Google), with Walmart, YouTube, Meta and TikTok accounting for the remainder of the traffic.

So Walmart has nothing to lose by linking with ChatGPT. It was previously the third banana and will still be, but now ChatGPT will serve as one big connected traffic scheme for Walmart for a large portion of e-commerce product searches that Walmart never had access to before. In other words: it is a very juicy banana.

Furthermore, even if Amazon takes a similar approach to Walmart and integrates with ChatGPT, Walmart should still win in the long run because of one word: “optionality.”

Think about it.

If all the items Walmart offers in its marketplace are almost exactly the same as what Amazon offers, who will win? The answer is: who can offer more omnichannel options and conveniences.

The possibilities that ChatGPT’s language processing can handle are endless. For example, would you like to pick up your items in a store? Would you like to have them delivered to your home? Do you want them delivered the same day? The great thing about ChatGPT is that it allows people to design the shopping experience that works best for them.

Walmart can provide that. Amazon can’t do that. Amazon does not have more than 4,600 stores within 10 miles of 90% of the US population. Walmart does. This is Walmart taking its physical store advantage and weaponizing it in the AI ​​age.

The strategic exclusion of fresh food says more than you think

The fact that fresh food is not included in the offering indicates that Walmart is being extremely thoughtful about this move. While many people, especially my wife, use ChatGPT for recipe creation and meal planning, Walmart understands that it doesn’t make sense to respond to this behavior and show its hand in the grocery store just yet.

Grocery is Walmart’s point of differentiation. It is Walmart’s biggest competitive advantage. It’s what sets Walmart apart from everyone else on the market. According to Placer.aiNearly a third of all groceries in the United States go through Walmart. By excluding fresh food from this initial ChatGPT integration, Walmart protects what makes it special, while still opening up a huge new channel for everything else.

Walmart isn’t saying it will never do this. It just can’t get started. That restraint is what separates a good strategy from a great strategy.

The retail media endgame

What’s even bigger and more admirable, however, is that this move is also about much more than just selling products, be they groceries or otherwise, through ChatGPT. It’s also about the growth of Walmart’s marketplace and the synergistic relationship between marketplaces and retail media. The faster Walmart, or any retailer, can grow its market, the more high-margin media dollars it can capture, high-margin dollars that it can then put back into Walmart’s omnichannel flywheel, which has been running like a well-oiled machine for the past five or six years.

Last November, Walmart CFO John David Rainey told investors that in just three years since the founding of Walmart Connect (Walmart’s advertising arm), almost a third of Walmart’s total operating revenues already come from advertising.

Therefore, this ChatGPT integration will not only help boost product sales. It will also help turn the already-too-exciting Walmart Connect business into a full-fledged brand.

Why this all matters in the long term

What keeps me awake at night is that we are witnessing the birth of a new trading paradigm. AI agents and chat interfaces can and will potentially change the way people discover and purchase products.

The retailers that win in this environment will, like Walmart, be those who don’t fall asleep at the wheel as the industry did during the ten to fifteen years after the birth of e-commerce, and instead act early, be strategic and think about how to turn their physical assets into competitive advantages rather than liabilities.

Traditional e-commerce has taught us that convenience wins. The age of AI trading will teach us that convenience and choice will win even more. Having more options is always better than having none, especially when someone or something (AI) can reduce the cognitive load of decision making.

Walmart gets this.

Walmart understands that their stores are not just places to shop. They are also fulfillment centers, pick-up locations and experiential destinations all in one. And in a world where ChatGPT or similar AI interfaces could become the primary way people search and discover products, having stores should be an advantage over anyone who doesn’t.

This is what intentional strategy looks like. This is what it means to play the long game while everyone else is worried about quarterly results.

So mark my words. This announcement will look even smarter years from now than it does today, and if Amazon doesn’t respond with something equally bold, Amazon risks looking back on this day as the day it slipped on the skin of Walmart’s own banana.