Is Wal-Mart the Next Netflix?

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If at first you don't succeed, skydiving might be a bad hobby for you. Online retailing, however, you can try and try again.

After years of misery in the online realm, Wal-Mart (NYS: WMT) is finally scoring an Internet hit with digital movie service Vudu. According to market analyst firm IHS, Vudu has quintupled its market share under Wal-Mart's stewardship to 5.3% -- in just 12 months' time. In the process, Vudu leapfrogged similar rent-or-buy services from Amazon.com (NAS: AMZN) and Sony (NYS: SNE) .

Wal-Mart's jump from fifth place to third is all the more impressive because the company doesn't plug the service into a hardware platform all its own. Far-and-away leader Apple (NAS: AAPL) leans on the iUniverse of gadgets to complement its iTunes music and movie store. Second-place Microsoft (NAS: MSFT) attached its Zune Video Marketplace to the red-hot Xbox 360 and Kinect console. Sony did the same with its PlayStation 3. In fifth place, Amazon is slugging it out hardware-less, just like Wal-Mart -- at least until the company unleashes its long-rumored Android tablet.

Instead, Wal-Mart has ripped a page out of the Netflix (NAS: NFLX) playbook by sliding its software into Blu-ray players, connected TV sets, and other entertainment devices made by other companies (and often sold at Wal-Mart, natch). The strategy seems to work in this nascent era of digital infotainment.

So why isn't Netflix on that top-five list? Well, this study looks at Internet pay-per-view video services, a market that added up to $229 million of total revenue in the first half of 2011. Do the math on Wal-Mart's share, and you get $11 million or so, a mere drop in the bucket for the retail champion. By contrast, Netflix collected $1.5 billion in first-half revenue on its subscription model, totally dwarfing the pay-per-view industry. The company plays in a whole different industry, where the only credible competition today comes from Amazon's Prime subscription service. Apples and pomegranates, my friend.

That said, Wal-Mart seems to want more of this online success. The company recently expanded its online-order, local-pickup program to all 3,600 stores, and has started testing an online grocery-delivery service reminiscent of Webvan and Amazon Fresh. But the online music service has gone to the Great Gig in the Sky. Wal-Mart is picking its battles.

Can Wal-Mart build on this success, or is Vudu an online fluke? Add Wal-Mart to your watchlist to keep an eye on the Arkansas giant. Whichever way the online adventure goes, you'll be the first to know.

At the time this article was published Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. The Motley Fool owns shares of Microsoft, Wal-Mart, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Amazon.com, Netflix, Wal-Mart, and Apple. They have also recommended creating a bull call spread position in Microsoft, a diagonal call position in Wal-Mart, and a bull call spread position in Apple while buying puts on Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.

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