The IFI Deal: Walmart Goes Shopping For Vizio

When the news broke earlier this year that Walmart sought to purchase smart television maker Vizio for $2.3 billion, analysts took note that the retailer was looking to enhance its advertising revenue and reach. What they may not have noticed was the bonus buy that comes with Vizio: a starter pack of data monitoring and analysis patents that protect space in gathering and measuring viewer data.


Retail Therapy

As mergers and acquisitions go, nobody would accuse Walmart of being a shopaholic, looking for growth no matter the cost. The largest retailer in the world is as careful a buyer as its own bargain-hunting customers.

So when the nearly $650 billion multinational retail behemoth announced in February that it had tendered $2.3 billion—pocket change for a company of Walmart’s scale— for Vizio, a publicly traded corporation that sells inexpensive consumer electronics, the move signaled a strategy shift toward a business segment that Walmart would be looking to for future revenue and profit: advertising. Sure, Vizio sells televisions and soundbars, but, more importantly, it sells promotions underpinned by an embedded system that watches and notates what viewers are gazing at on the tube. Ad revenue for Walmart, $3.4 billion annually, is a trifling sum compared to its overall take, but it delivers much better margins to the bottom line than its core grocery and general merchandising operations.

During Walmart’s final quarter of the last fiscal year, the company reported 33% global advertising business growth; and in the U.S., it reported 22% sales growth through its advertising program Walmart Connect. Though advertising is a small business, finding pockets of growth is crucial at a time when consumers—particularly lower income consumers—are starting to feel less confident, which can lead to pullbacks in spending. The new data capture from Vizio’s software, combined with Walmart’s own information about what its customers regularly purchase, expands the retailer’s advantage when it comes to selling advertising to third parties like Gerber, Clorox and L’Oreal. It also helps them fend off—or play catch up with, depending on how you look at it—Amazon, the nation’s second largest retailer. Amazon’s advertising business is a whopper in comparison, approaching $50 billion per year.

Vizio’s proprietary data gathering technology has patents protecting that knowhow, and Walmart, presumably, would subsume Vizio’s IP into its own storehouse of patents, allowing the retailer use of those inventions and the opportunity to build them out even more. If Walmart can use the technology to sell more ads (and perhaps even create streaming entertainment) to companies trying to influence Walmart’s shoppers, it could put the retailer on a trajectory toward diversifying its business away from just selling goods at grand scale and toward the media business. Assuming regulators approve the deal, it could close as early as this summer.

IFI CLAIMS, the most trusted patent data provider on the planet, performed a review of the patent landscape around Walmart and Vizio. Here is what we found.

Walmart’s Everyday Patents

These Walmart Patents Go To Market

You wouldn’t necessarily think of a retail giant looking to fill patent space. After all, how much creativity and engineering is involved in selling toothpaste, baby formula, laundry detergent, and pet toys? But it would be a mistake to underestimate the need to create and protect invention when it comes to acquiring goods and grocery items and then getting them into the physical and digital shopping carts of the more than 250 million customers that frequent Walmart in any given week.

Over the past 10 years, Walmart has applied for 3,693 patents and has been granted a total of 2,020. Since 2013, patenting activity has traveled at a healthy upward clip, but after a 2019 high point, it took a three-year dip. In the last year, patents have picked up again.

Why does Walmart need patents? Consider the logistics of a company with more than 10,000 stores in nearly 20 countries with around 140,000 SKUs on a typical shopping day. Add to that an online storefront that now rakes in $100 billion in sales. It takes more than 200 distribution centers, 9,000 tractors, 80,000 trailers, and 11,000 drivers, each traversing an average of 100,000 miles per year to keep the kind of shop that brings merchandise—both perishable and shelf-stable—to the customer at the moment of need. Managing the level of intricacy in an operation of this scale cannot be done with timetables and spreadsheets. In this 2022 application from Walmart for a patent on a system for remotely purchasing a perishable product, the invention covers the capture of images for a product that spoils and a control circuit that executes a computer program that allows a customer to see what is available for purchase. A patent like that might have numerous applications—perhaps it could be used to deter shoplifting in the self-checkout aisles, a major problem for retailers. As a result, many are scaling back, including Walmart, which recently announced the removal of a self-checkout lane at a store in Missouri.

So in a business where margins are razor-thin and profits are earned on volume, an enterprise like Walmart needs technology that makes the business operate faster—and more efficiently and economically in order to fulfill their corporate mission of helping customers “Save Money. Live Better.” So while not the type of company that patents at the level of, say, a pharmaceutical or technology corporation, there is plenty of invention involved in a complicated supply and distribution chain, and the prudent thing to do is to protect it for competitive edge.

Walmart's US Grants & Applications by Year

Business Administration

When low overhead and top-notch efficiency in value retailing are your unique business advantages, it’s no surprise that the chief tech areas in Walmart’s patent portfolio are administration management, commerce, and information retrieval. For instance, in this 2022 application, Walmart has created a method to determine the entities involved in multiple transactions.

Machine learning is also a high-priority technology, which might help Walmart customize recommendations according to a buyer’s purchasing history, optimize inventory levels and supply chain management, or root out fraud by comparing purchases against a patron’s buying patterns. And naturally, payment architectures and protocols help make checking out quick, seamless, and fraud-resistant—vital procedures when processing hundreds of millions of transactions.

As for the relative magnitude of each technology covered by Walmart (depicted by the squares in the tree map, which represent the categorization codes that patent examiners attach to individual inventions), data processing, which would team up with many of the technologies Walmart uses in its patents, looms very large. What does this say about Walmart? That all of the buying and selling of goods is producing reams of data that the company is capturing and likely using to improve its sales and streamline its procedures. Walmart’s purpose, it consistently says, is to help people save money. Keeping the data flowing and administration humming—and patenting the novelties they discover in those areas—would appear to reflect the company’s core mission.

Top Tech Areas Covered by Walmart

Walmart Tree Map

Stocking Up on Tech

As with anything else of value, patent technology needs to stand the test of time. It’s instructive to plot Cooperative Patent Classification (CPC) trends to see how particular technologies are developing over a stretch of time. In Walmart’s innovation warehouse, the company has a storeroom of logistics technology (G06Q 10/087) in the whole administration and management area discussed above. This CPC code covers warehousing, loading, distribution, inventory management, procurement, filling orders, classification of parts and supplies, and other systems. The company is also increasing its commerce technologies (G06Q 30/0631), which would include e-shopping tools such as item recommendations based on previous merchandise buys.

One technology area that is declining in Walmart’s patent portfolio? Drones (B64C 39/024). Over the past two years, Walmart has made more than 20,000 drone deliveries. And earlier this year, it announced a large drone delivery expansion in the Dallas Forth-Worth metro area. But drone delivery hasn’t been as easy and seamless as we’d once thought when the technology was unveiled a decade ago. A drone can’t carry a whole lot of stuff. And then, of course, FAA approvals are required. Walmart, notably, partners with two drone companies to make these deliveries: Wing and Zipline. Given that, perhaps Walmart figures they’ll leave the invention in the drone area to these third parties as well.

Evolution of Walmart's Top Technologies Over Time

Visualizing Vizio’s Patents

Big Data, Few Patents

By the numbers, Vizio is not exactly a patent powerhouse. Over the past 10 years, the television maker has logged 99 applications and 107 grants, with a spike of 24 grants in 2015, which coincides with its purchase of a company called Cognitive Media Networks, renamed Inscape. Few patents, for a smaller, more focused company, does not indicate a lack of innovation. There can be a lot of value in one prized patent. This patent currently co-assigned to Vizio for displaying targeted content on a linked television lets the system gather data from television signals, which can then be used to deliver targeted advertising. And this encryption patent protects the data stream going back and forth between devices.

Vizio's US Grants & Applications by Year

The Technology of Interactivity, Interfacing, and Cryptography

The creativity that supports entertainment invention is segmented into a long list of technologies. And in the tree map below, you can see that most any Vizio patent will touch the general area of pictorial communication. So yes, ostensibly, Vizio is an entertainment company, peddling the picture and sound of television. But the real value of Vizio’s business is in the viewer data that the company collects, which can be used to sell advertising, and the patents bear that out, when you rank them by technology areas. Interactive television is Vizio’s top field, followed by image recognition, network security protocols, interfacing, and cryptographic mechanisms, the process of coding data so that only the receiver getting the messages can see and understand them.

Top Tech Areas Covered by Vizio

Vizio Tree Map

Vizio CPC Code Monitor

Over the past decade, Vizio has sustained its focus on covering four particular technologies under the H04N (pictorial communication, television) umbrella. Selective content distribution (H04N 21/23418) analyzes video streams, recognizes scenes and detects when the scenes change. Operations for analyzing video streams (H04N 21/44008) include components used for monitoring and identification, while management of client data (H04N 21/4532) is a technology that digs into a viewer’s profile and preferences and sorts out those details over a network. Processing of monitored end-user data (H04N 21/4667) puts all the data together and determines trends based on file logs of viewer selections. All of this is further confirmation that Vizio is simply a data and advertising company using television as its mode of carrying its main value proposition. Walmart can certainly sell Vizio’s televisions and soundbars and has the world-class distribution network to do so. But the acquisition is about gathering information and using it to push advertisements. And Vizio’s patents affirm its value in this arena.

Evolution of Vizio's Top Technologies Over Time

Taking Stock of the Patent Competition

Amazon Is Prime in Patents

Walmart is far bigger than Amazon in terms of retailing revenue, but Amazon, Walmart’s most direct competitor, is the patent powerhouse in this rivalry. Amazon is mighty in network protocol services and applications and is also exhibiting an intense focus on cryptographic technologies. Over the past three years, Amazon has filed and obtained grants for more than 5,000 patents. It’s worth noting here that although Amazon is the world’s largest e-tailer, it also has a hefty cloud services business in the mix that competes with Microsoft and Google, so stacking up Amazon and Walmart patents isn’t a perfect head-to-head comparison because Amazon’s portfolio would cover more of a range of invention.

The other interesting thing about Amazon’s application and grant pattern is that grants far outnumber applications. Usually, those trend lines are flipped because not every patent filed is granted by the USPTO, so Amazon’s grant rate appears higher than the norm. Bottom line is that any investor doing due diligence should certainly ask questions about this trend. Here is the likely scenario, according to our analysis: Applicants who want privacy sometimes file non-publication requests with the USPTO that allow inventions to remain undisclosed until the patent is granted. Non-publication filings require applicants to give up the right to file internationally, unless the request is revoked.

Amazon has been known in the past for filing non-publication requests when recording a U.S. patent application. The most well-known example of this non-publication practice is this patent that broke onto the scene when granted in 2017, even though it was originally filed in 2012. The invention, which could block customers using store-provided Wi-Fi from comparison shopping with competitors, was a big surprise to the market because Amazon had only just started opening brick-and-mortar locations and was on the cusp of announcing a major acquisition—Whole Foods. Some saw it as ironic that the online retailer that had been the benchmark for comparison shoppers in other stores could derail their own in-store shoppers from doing the same. To somebody who understands patent strategy, however, it was seen more as a defensive play against Walmart—in other words, Amazon invented the very thing that Walmart might someday invent in order to block its own in-store shoppers from comparing with Amazon and ordering online.

In any event, there is a bigger point when it comes to Amazon’s IP strategy: roughly 62% of their patents over the past 10 years have been filed with non-publication requests. Amazon clearly sees value in keeping its inventions under wraps until the big reveal. And we will never really know the true application to grant ratio because if Amazon never lifts the non-publication status of applications that don’t get granted, then the application is never published.

Amazon's US Grants & Applications by Year

Top Tech Areas Covered by Amazon

Retail Sector Patent Sweep

Taking a quick look at other top retailers Target, Home Depot, and Best Buy, there isn’t a whole lot on the shelves in the way of patents. Target has filed 236 patents in the past three years, while Home Depot has filed 19 and Best Buy has filed 25 over the same time period. Costco doesn’t have anything recent on file.

Target's US Grants & Applications by Year

Top Tech Areas Covered by Target

Best Buy's US Grants & Applications by Year

Top Tech Areas Covered by Best Buy

Home Depot US Grants & Applications by Year

Top Tech Areas Covered by Home Depot

Roku’s Patent Stream

Roku, Vizio’s main competitor in the space and the operating system provider for Walmart’s store brand of televisions, has far more patents than Vizio, but is not as active as Vizio in the cryptography arena. Selective content distribution is Roku’s main area of technology focus, followed by interface arrangement and scene-specific controls. After the announcement of Vizio’s acquisition by Walmart, Roku’s stock fell sharply and has remained under pressure. Walmart is one of Roku’s biggest sellers of its televisions and the brand will likely get less attention in Walmart’s physical and digital storefronts. And with Vizio, the retail giant is better positioned to be a much bigger presence in living rooms everywhere.

Roku's US Grants & Applications by Year

Top Tech Areas Covered by Roku