Wal-Mart bet its e-commerce future on the savvy of Silicon Valley late Thursday, announcing it will join with blue-chip venture firm Accel Partners to spin off its online retailing operations into an independent company, to be headquartered in Palo Alto, Calif.
Wal-Mart says the new company, dubbed Wal-Mart.com, will work to speed up the development of its e-commerce site and lure more of its offline customers to the Net. The announcement comes on the heels of the long-delayed revamp of the Wal-Mart.com Web site on Jan. 1.
"The combination of the trusted Wal-Mart brand and retail expertise with the company-building and technology savvy of Accel Partners is an exciting development for our customers, Wal-Mart.com and the Internet," said Lee Scott, vice chairman and COO, in a statement. "Our people deserve a lot of credit for the progress we've made with our existing site in such short order. Through their help and effort, we are well positioned to take our site to another level."
Wal-Mart.com will soon recruit a CEO and management team, the companies say. An independent board of directors will include Scott; Rob Walton, chairman of Bentonville, Ark.-based Wal-Mart Stores; and James Breyer, managing partner of Accel. Wal-Mart will retain a majority stake in the new venture, while Accel and the management team will hold equity positions in the company. The companies did not disclose their equity stakes or the investment each side will put into the venture.
Wal-Mart is the latest in a string of offline retailers that have bet on the success of their e-commerce operations and tapped into the technology know-how of Silicon Valley VCs. Already companies such as Nordstrom, Kmart and others have teamed up with VC firms to create independent e-commerce companies.
"By locating this new company in the heart of Silicon Valley, we will have access to an outstanding talent base as well as emerging Internet technologies," Scott said. "This puts Wal-Mart.com right where it needs to be, and should allow us to further develop our e-commerce business at both Wal-Mart and Internet speed."
Conventional wisdom is that by creating an independent spinoff, giant offline retailers can channel their Internet efforts into a nimble entity that can compete with fast-growing e-commerce startups. What's more, the independent companies have a better chance of recruiting top management and engineering talent by offering stock options with the potential of Internet riches.
The teaming up of the world's largest retailer with Accel is sure to make a splash in the e-commerce pool. If successful, the venture could eventually pose serious competition to online retail giant Amazon.com.
But successful partnerships between the spinoffs of offline giants and VCs is by no means assured. The companies face the daunting task of executing flawlessly to catch up with the Internet companies that are already far ahead.
What's more, one such partnership has already unraveled: Toys "R" Us and Benchmark Capital called off their alliance last summer after a clash of cultures and disagreement over ownership of the e-commerce venture.
In December, Wal-Mart announced a sweeping partnership with America Online to offer a low-cost, cobranded Net access service. The two companies also agreed to develop various cross-marketing initiatives. Scott said in the statement that the relationship with Accel will enhance the AOL agreement.