But Flurry, a mobile analytics company, is introducing the term “app & mortar” in a new report published today that explores the rise in smartphone shopping.

Clearly, the term is a play on the term “bricks and clicks,” which emerged in the late ’90s and became popular as e-commerce started to challenge physical retailers.

In some respects, this report confirms what we already knew about mobile commerce, but takes it a step further by figuring out who is benefiting the most right now from the trend. Surprisingly, it’s physical retailers.

In the report, Flurry analyzed the amount of time spent by consumers across more than 1,800 iOS and Android shopping apps in December 2012, compared to the same month a year earlier.

The biggest growth category by far was apps developed by retailers, such as Walmart, Macy’s and Gap.

Flurry said time spent in retail apps skyrocketed by 525 percent year over year. In contrast, online marketplaces, such as eBay and Amazon, increased by only 178 percent.

In terms of the share of shoppers’ time being spent inside the different apps, retailers also saw the biggest gains. In December 2012, shoppers spent 27 percent of their time inside of retail apps, up by 12 percentage points over the same month a year earlier.

The gain in share by retail apps came at the expense of online marketplace and daily deal apps, which declined year over year. The share of time being spent with online marketplaces decreased from 25 percent in December 2011 to 20 percent in December 2012. Daily deal providers, like Groupon and LivingSocial, fell to 13 percent from 20 percent.

Flurry did not offer a lot of analysis as to why this was occurring, but suggested that retailers were beginning to better respond to the move toward “online meeting offline shopping through mobile apps.” In general, 2012 was the first year that many online or physical retailers took mobile shopping seriously, so it was likely that the distribution of time spent would change with a huge surge in consumer interest and better options.

Interestingly, even though Flurry noted a decrease in time spent in online marketplace apps, eBay still easily beat its mobile revenue forecast (so it’s not clear if there’s a direct correlation between time spent and dollars spent). Last week, eBay said it recorded $13 billion in mobile revenue in 2012, exceeding its forecast of $10 billion. This year, the online retailer expects mobile revenue to hit $20 billion.

EBay is the most transparent of the larger e-commerce players when it comes to mobile’s contribution.

In contrast, an analyst’s best guess for Amazon is that about $3 billion to $5 billion of its annual sales are coming from mobile devices.

And it was all my fault.

The fact that Best Buy lost money based on Walmart’s promotion was exposed after it and several other retailers filed complaints against Walmart for false advertising tactics with about a dozen state attorneys general, according to The Wall Street Journal.

In the case of the iPhone 5, Best Buy said it was compelled to match Walmart’s advertised price, even though it “concluded that Walmart didn’t actually have a sufficient number of iPhones available.”

That syncs up with what I reported on Dec. 15 when Walmart’s promotion first went into effect.

On that day, Walmart started offering the iPhone 5 at $127, compared to the original price of $190. It also started selling the iPad for $399, or $100 off. The discounts were only supposed to be available at its supercenters, or about 3,000 stores nationwide.

After calling around to several stores in Washington and California the day the promotion went live, I determined Walmart’s inventory of devices and pricing were wildly inconsistent.

Since it was difficult to find which stores had stock on hand, I recommended going to “one of the many stores that are offering to match the lowest prices this holiday season, including Best Buy and Target.” Over Twitter, at least one person told me that they took the advice and received discounted phones at Best Buy.

Walmart said the false advertising accusations are untrue. According to the WSJ, the company said it shipped double the usual amount of iPhones during the promotion and that the phone was 98 percent in stock at stores that carried the devices.

I hope that means I’m off the hook.

Myriad issues have held back the new Apple TV, from complex dealings and integration with established broadcast cable providers, to hardware design and supply issues, to the necessary evolution of iOS SDKs — but we won’t be kept waiting forever. There’s every reason to expect the new product to launch in 2013. When it does, we’re likely to see massive disruption of the broadcast and gaming industries, the rise of an age of TV apps, and an even stronger leadership role for Apple in software, media, communications and consumer devices.

What will the coming Apple TV look like, and what will it mean for our industry? There’s plenty of information available to guide our speculation. Let’s imagine Christmas 2013, and the new line of Apple TV products I hope to find under my tree.

Apple TV under the Christmas tree

What will the new Apple TV be?
The new Apple TV will be defined by three key values for consumers:

1. The best way to consume broadcast TV and any online video. A seamless touch- and TV-based interface makes it simple to consume your existing cable and broadcast content, including video-on-demand (VOD) libraries and DVR features. Via iTunes, you also get instant access to mega-libraries and subscriptions from iTunes, Netflix, Hulu, not to mention YouTube. Naturally, you can also access any AirPlay-enabled videos on the Web, as well as TV apps updated with the new iOS 7 SDK.
2. The ultimate game console. The new Apple TV will be a direct assault on the game console industry, with a living-room platform that should leave Nintendo, Microsoft and Sony running scared. With a single launch, Apple will extend the iOS gaming distribution ecosystem into the living room, and invent new categories of gaming through the interaction of iOS devices with Apple TV.
3. The best way to experience all of your apps. Crucially, the new Apple TV will extend nearly every existing iOS app into being a TV app that brings the power and richness of large display surfaces to consumer computing — a task that nearly every industry titan has attempted and failed. The combination of touch and TV will ignite a new era in dual-screen software application design and development, in which it will become hard to believe that Internet software was once based solely on PCs, phones and tablets.

Fulfilling the Apple product design fetish
Everyone wants to know what the new Apple TV will look like, what it will include inside, and how it will connect all of Apple’s existing consumer and developer offerings. As usual, product packaging and design are fundamental components of Apple’s go-to-market strategy, complemented by their unique ability to leverage their existing app, content and device ecosystem.

Apple already has an ecosystem of nearly one million apps, the world’s best library of a la carte media, and hundreds of millions of device customers. In an ideal world, Apple would like to sell the majority of these customers a new device for TV. The company also needs to find new $30 billion+/year businesses to keep up its pace of growth and value creation. The key is to introduce a product franchise that defines the consumer experience, owns the extension of the app platform into the TV, and captures as many users as possible, as quickly as possible — while taking enormous share from an established, multi-hundred-billion dollar/year industry.

To do this, Apple needs a two-pronged strategy:

1. A new companion device for TV that starts at $149, attaches to nearly any existing TV, and does not require customers to buy an expensive new monitor. This is crucial for quickly establishing and maintaining platform dominance quickly, and even standalone could be a $5 billion to $10 billion opportunity.
2. A new family of ultra-thin TV monitors that bundles all of the capabilities of the companion device and includes beefed up computing power. These large-screen monitors will be a direct assault on the global TV monitor industry, a market worth hundreds of billions annually, albeit with slightly slower replacement cycles of four years versus two years for smartphones and tablets. This gives Apple that additional $30 billion+ revenue stream it needs.

Combined, these new products will radically transform the computing, media and electronics industry, and more deeply cement Apple’s role as the de facto platform for content and apps.

Let’s take a closer look at each of these products:

The new Apple TV companion
Designed with a new A7 quad-core CPU, the device will provide enough horsepower to deliver 1080p HD video and the most demanding gaming graphics; built-in front-facing sensors and camera; and enough storage for loads of games, apps, content, and recorded live TV.

The device will offer HDMI and digital audio output, a gigabit Ethernet port and built-in WiFi, as well as two Lightning ports — one for power, another for the included “co-ax dongle,” which will connect directly to most existing cable TV hookups to replace your existing cable set-top box. More on that later.

As we’ve come to expect from Apple, the product will be offered in a sleek and slim form factor that sits easily on top of or under any existing TV. I suspect a thin horizontal bar, such as we’ve rendered here:

Apple TV Companion

Apple TV companion device specs

This design will put the device truly at the center of the living room, a compact porthole into the entire digital economy. Developers will be able to leverage the front-facing sensors and camera in the same way they build on existing iOS APIs; in fact, the new platform launch will likely include iOS 7 with support for new TV apps and Apple TV SDKs.

For existing iPhone and iPad users who already own a flat-screen TV, this new TV companion device will be a great bargain that also radically expands the value of their existing devices. This will also be a highly popular form factor for multi-monitor households, offices and even retail establishments.

The new ultra-thin Apple TV monitor
Likely coming in 46″ and 60″ models with a solid glass front and aluminum back, and stand and rear-mounting options, this ultra-thin monitor will mirror the design aesthetic of the latest iPhone and iPad.

Apple TV basic form factor

Apple TV specs

Apple TV stand options

The full capabilities of the companion device will be complemented with additional audio, video and lightning ports, storage of up to three terabytes, and, of course, gorgeous display quality (probably 4K resolution) and exceptional design for a modern environment.

How TV works on Apple TV
While Apple TV will support voice- and motion-based input for global menus and navigation, the preferred control method for basic everyday use will be either the bundled simple remote — or, more likely — new iOS 7 apps from Apple that let you control Apple TV with your iPhone and iPad.

Apple TV app and Apple TV

Apple TV app closeup

Channel surfing with the Apple TV app

Apple TV app detail and TV

With the iPhone, Apple created a simple “phone” application on top of existing telephony carrier infrastructure, improving the consumer’s user experience and creating an additional product sales opportunity for carriers. The company will take a similar approach to existing broadcast cable TV and, in so doing, put one or two major U.S. cable operators in the same privileged position that AT&T enjoyed following the iPhone launch. Around the world, cable TV distributors will battle for national sales and marketing rights for the Apple TV.

To accomplish this, Apple has likely created a new API for interacting with the IP-based cable broadcast infrastructure that providers such as Comcast, AT&T, Verizon and Time Warner Cable have been moving to for a number of years. This will enable Apple to present a consistent user experience worldwide for accessing live broadcast channels and recording content for later consumption. With program guide data, VOD metadata, and the ability to use network or local DVR APIs, the new TV app for iOS will become the simplest form we’ve ever had for watching broadcast television.

Cable companies may initially resist supporting this offering, viewing their ability to cross-promote offerings in their guide and VOD menus, and the customer relationship in general, as their provenance. This would be as misguided as the mobile carriers were who thought they could control and customize the home screens, operating systems and bundled apps of mobile phones as a strategic advantage. Smart operators will understand their role as broadband and infrastructure providers, and will continue — for now — to be the primary packagers of broadcast content with its lucrative tolls for subscription programming. For all of the hope that Apple would help to blow up existing cable packaging, for now, the company’s priority is to navigate and establish global partnerships with multi-system operators (MSOs) and multi-channel video programming distributors (MVPDs) to sell their new TV and TV companion devices.

With natural hooks into the iTunes a la carte content library, Apple will be able to combine premium cable subscription content with their on-demand library to offer users the broadest choice for video content.

Apple’s TV app in iOS 7 is also likely to take ownership of the core second-screen category for companion content to broadcast shows. Apple can easily provide rich, contextual meta-data about shows, characters and social chatter, while providing new APIs that broadcasters can use as a launching point into show- and channel-specific iOS apps. These apps will give broadcasters the greater brand control and direct consumer relationships they’ve wanted, with the added benefit of cross-promotion from within Apple’s own TV app. Because Apple TV users will be linked to a cable provider just as your iPhone is linked to a mobile operator, broadcasters will also gain a simple and seamless way to authenticate consumers into apps that offer their full slate of catch-up TV programming.

It also seems likely that AirPlay updates will include streaming from an Apple TV to your iPhone and iPad (e.g. the inverse of current AirPlay use-cases), allowing you to access and stream content from your Apple TV via your iPhone and iPad, including live television and DVR content — like the original innovation from Sling. This is presuming Apple’s deals with MSOs will include wireless streaming rights, which seems to be increasingly becoming the market standard.

Viacom Nick/Nickelodeon dual screen TV App

Nick app close-up

As with iPhones and iPads, the new devices will come with many preinstalled Apple and third-party apps; in this case likely including leading online video services like Netflix, Hulu, Amazon VoD, and YouTube, as well as TV Everywhere apps such as HBO Go. More importantly, any developer will be able to build content and apps for Apple TV. Just as nearly every app you download for your iPhone is also available in a version that fits the iPad display, new iOS 7 Universal Apps will include code for deployment on Apple TV.

Apple continues its disruption of the gaming industry
Putting all of this together — the new hardware, the new APIs, the new input capabilities — adds up to nothing less than a full-frontal assault on the game console market, as Apple and iTunes become the distributor of choice for everything from casual to hardcore 3-D gaming.

While the large installed bases of industry incumbents provide some advantage, it pales in comparison to Apple’s hundreds of millions of touch-device users, millions of apps, and unparalleled catalog of a la carte media. It’s hard to imagine a scenario where Microsoft, Sony or Nintendo can win.

Apple’s iOS is already the world’s most important gaming platform in terms of new game content creation and the velocity and scale of consumer usage. With new gaming-friendly APIs for controllers and user input, complemented with local CPU, graphics and storage horsepower on the device itself, the new Apple TV is a deeply significant threat to Nintendo, Sony and Microsoft in the console market. The same is true for the multibillion dollar businesses built by Amazon, Wal-Mart, Target, Toys “R” Us, and GameStop around selling game CDs; Apple TV will be a download-only install medium, as we reach the tipping point in storage and bandwidth where it no longer makes sense to distribute games on physical media.

Some have argued that Apple and iOS aren’t for hardcore gamers — but tell that to the teenage boys playing Assassin’s Creed and Call of Duty on their iPhones and iPads. By owning the TV run-time, Apple TV will provide amazing development opportunities for the technical and creative elite and will bring a flood of innovative content creation from major game studios. For the launch of the first iPod with video, Apple brought Disney on stage to announce the availability of “Lost” and “Desperate Housewives” for download, heralding the age of a la carte television. For the Apple TV launch, Apple will stand alongside the world’s top game developers to showcase the ultimate gaming platform.

To achieve this, iOS 7 will likely support APIs for interacting with and connecting to third-party game controllers via Bluetooth and possibly RF — as well classic gaming handhelds, steering wheels, guns and any other devices that suit the needs of gameplay.

Multi-user gameplay scenario (Call of Duty) with iPads and a traditional handheld controller

The use cases for gaming are mind-boggling, especially when you bring together geographically dispersed users for collaborative games like massive multiplayer online games. Imagine playing Call of Duty Massive with a gorgeous 60-inch display: &ou’re using a standard controller for first-person shooter play, a friend next to you manages ops from the iPad controller, and a few more friends watch along from their iPhones while they’re riding the bus. Another friend receives a push notification alerting them to a crisis that could use their help — they look away from what they’re watching on TV and jump into the game from their tablet. If killing games aren’t your cup of tea, other options span “edutainment” games, basic single-user games, and even the mundane but always enjoyable family game of Monopoly, with the board rendered with real-time updates on the TV rather than the coffee table.

Which leads us to the third and key value proposition of the new Apple TV:

It’s all about the apps
While Apple TV makes a strong case with its broadcast TV and gaming capabilities, its ultimate killer app will be, appropriately, the app ecosystem it will offer, as millions of iOS apps extend onto the television display surface. I’ve written about this more extensively elsewhere, but the basic idea is that we’re moving into a software world where more and more applications combine a touch device with a TV display surface. That’s a huge reason why consumers will cheer for Apple TV — they’re already embedded in the Apple ecosystem, and so are all of their favorite apps and content. Bringing the familiarity and integration of these platforms together will give Apple a red carpet into the living room, and again revolutionize the world of software to offer value far beyond the consumer experiences of today.

Consider an important (and often expensive) task that we all face many times in our lives — buying a car. How can the Apple TV platform and its broader platforms help make buying a car a better experience? Let’s use BMW — always an innovator in the customer experience — as an example. You find and download the BMW app from the App Store to your iPad (while in the background, the same app is installed on your iPhone). When you open the app, it detects that you have an Apple TV, and asks your permission to display views onto your TV.

BMW dual-screen TV app experience

BMW dual-screen TV app experience

You begin with a quick view of models, and narrow down to the latest midsize sedans, watch the marketing video on your TV, then decide to take the car configurator for a spin. As you’re taken through each area of customization, your TV updates with visual displays of your choices in that section; if you want to learn more about a feature, a quick touch invokes an HD video on your TV. As you make choices on your iPad, the car you’re building takes shape in a picture-perfect rendition on the TV screen in front of you. Once you’re done, you can have the app geolocate your nearest dealer and schedule a test drive. On arrival at the dealership, your geolocation triggers a push notification to a sales associate who greets you by name before handing you the keys to the car.

Every app in our lives will benefit from the connection of phone, tablet and TV, and for this reason Apple TV will become an essential consumer platform. The critical point to understand is that Apple TV is not just about television and games — it’s about us all figuring out how to make the best use of the large displays in our lives.

Technically, there are still a number of key problems Apple needs to solve in iOS 7 regarding how apps discover and get user permission to AirPlay on Apple TV, but these are the kinds of user experience problems that Apple is renowned for addressing. Expect an overhaul of AirPlay protocols and user experience in iOS 7, not to mention many of the new APIs and capabilities that I’ve described above.

The new Apple TV offer for consumers and developers
We look forward to the day that Apple’s new product and developer pages look something like these:

Apple.com product marketing pages

Apple.com developer SDK pages

This is already the direction in which things seem to be moving. For brands, media publishers and app developers, it’s never too early to reenvision their apps and consumer user experiences for Apple’s latest revolution in the way we live.

You can watch and explore all of the images and more in this New Apple TV image gallery.

Jeremy Allaire is the founder, chairman and CEO of Brightcove, a leading provider of cloud platforms for distributing media and apps, with a suite of platform APIs, SDKs and Web services aimed at Web and app developers and the businesses they help to drive.

Walmart is slashing the price of a few iPhone and iPad models — including Apple’s flagship iPhone 5 — in 3,000 stores, reports Reuters.

The 16 gigabyte iPhone 5 will cost $127, compared to the original price of $190 (with a two-year contract from Verizon Wireless, Sprint or AT&T). Wal-Mart is also selling the 16GB iPhone 4S for $47 — nearly half off. The 16GB iPad with Wi-Fi will cost $399, or $100 off.

Interestingly, the 30-day promotion has Apple’s blessing. A Walmart spokeswoman told Retuers that the discounts were arranged with Apple. But, after making a few inquiries, the discounts proved difficult to find in a handful of locations in Washington and California.

I was told that the iPhone is only carried at Walmart Supercenters, which, if true, should make the hunt easier, since there are only 3,100 supercenters in the U.S., roughly the equivalent number of stores where Walmart is supposedly offering the discounts. Instead, I found the inventory and prices to be wildly inconsistent.

My advice, if you plan on taking on the challenge, is be patient. It takes awhile to find the correct person in electronics to answer your question on the phone, and hold times can be long. In one case, I was hung up on; in another extreme case, a representative simply told me that the iPhone 5 would cost “a lot.”

After calling the stores close to my home, I found that some only carried phones for Verizon Wireless and sometimes AT&T, but never Sprint. Additionally, inventory was limited to the 16GB iPhone 5, with none carrying the higher-capacity 32GB model.

Finally, after calling two stores in the San Francisco area, I found one Supercenter that was selling the iPhone at a discount. The Walmart in American Canyon, Calif. said the phone from Verizon Wireless would cost $127 with a two-year contract, but the iPad remained at its original price of $499. The Supercenter in Napa continued to charge full price for all the devices.

Here’s one idea: To save time and the headache of calling around, go to one of the many stores that are offering to match the lowest prices this holiday season, including Best Buy and Target, which have both vowed to honor some competitors’ prices. Perhaps you’ll have better luck there.

In a recent survey, more than half of U.S. consumers – 53 percent — said they would begin their shopping with Amazon.

In the proprietary survey conducted by Baird Equity Research, analyst Colin Sebastian said Google will be the second-most-popular initial destination (36 percent); eBay is the third (7 percent); and then it tapers off drastically from there, with Walmart.com in fourth place (2 percent).

Beyond tradition, there’s a good reason why consumers are drawn to the classics at this time of the year. Essentially, these sites are the shopping malls of the Internet, where just about anything can be found by plugging the name of a sought-after product — like the new Wii U or the Nexus 7 tablet — into a search box, and getting immediate results.

It’s worth noting that the “other” category in the survey totals 1 percent, which is fairly significant, since spending will hit $1 billion on big shopping days like Black Friday or Cyber Monday (the Friday and Monday after Thanksgiving). You can assume that a big portion of that will go toward nontraditional or boutique retailers, which aren’t focusing on search, but rather on curating a small inventory of products for people who may be having a hard time deciding what to buy. Some sites that do a really good job of this include the Daily Grommet, Fab.com, Groupon and OpenSky.

But, given that the bulk of the shopping starts with Amazon, Google and eBay, here’s a look at what each one brings to the dining-room table:

1. Amazon: The retailer benefits from the act of “showrooming.” Roughly 30 percent of smartphone users in the survey said they always or frequently compare prices of products in retail stores using a mobile device, and 75 percent are comparing prices in stores. Data from comScore suggests that mobile shoppers tend to favor apps for Amazon and eBay versus apps from particular retailers. The takeaway is that even if some people might shop in person, they could end up buying online.
2. Google Shopping: This year, Google has changed the way it accepts product feeds from retailers. Before, it was free, but now it is a paid experience. While retailers will have to budget for this change, they will be getting a lot for their money, including the ability to post large images — some in 3-D — that appear on the results page. Customers can easily sort across many sites (eBay, Wayfair, Newegg, etc.), looking for the retailer that has the best prices, free shipping and other features, like style, size or color. The results will not include Amazon’s products, however, as the company has declined to pay to play.
3. eBay: Like Amazon, it’s mobile, mobile, mobile for both eBay and its PayPal subsidiary. For all the people who don’t want to get off the couch and fight the crowds at the mall, the company is listing a variety of Black Friday and Cyber Monday deals exclusively on its mobile applications. Those deals will not be found if consumers visit eBay online.
4. Walmart.com: This holiday, the mega-offline-retailer wants to be more accessible online. It has started offering customers in four markets the chance to buy and receive items on the same day, for $10. It has launched “Walmart To Go” in Northern Virginia, Philadelphia and Minneapolis, and the San Jose-San Francisco area is coming in November. No minimum orders are required. EBay has done the same thing in San Francisco, and Sebastian found in his survey that 70 percent of consumers would be willing to pay $5 to $10 for the service.

In the physical retail world, it’s the equivalent of putting up Christmas displays and piping in carols over the sound system before Thanksgiving, maybe even before Halloween.

This year, e-tailers are jumping the gun in an effort to get a bigger share of your wallet by announcing sales as much as a week before such traditionally heavy online shopping days as Black Friday and Cyber Monday (the Friday and Monday following Thanksgiving, respectively).

Two of the biggest retailers in the U.S. are exemplifying this trend with rival releases this morning:

Walmart said today that it is kicking off Cyber Week this year on Saturday, Nov. 24, and lasting through Sunday, Dec. 2. Specials will be available online and refreshed daily, with customers enjoying free shipping on more than 100,000 items. Meanwhile, Amazon said its Black Friday deals are starting today and running through Saturday. “We’re offering customers our widest selection of Black Friday Lightning Deals ever and we’re bringing doorbuster deals to shoppers earlier this year,” said Ben Hartman, Amazon’s VP of consumer electronics.

There are signs that consumers are responding to the early offers:

• PayPal, which claims to process nearly one-fifth of global e-commerce, said today that the official U.S. shopping season started as early as Sept. 30.
• Fab.com said today that sales from its 2012 holiday shopping are up 400 percent versus its holiday business this time a year ago.
• Chase Holiday Pulse data, which tracks data from 50 large e-commerce retailers, is finding that year-over-year sales volume is up 12.3 percent over 2011. Some days, like Nov. 11, were up more than 50 percent.

But many of the busiest days are yet to come. UPS is preparing for Thursday, Dec. 20, when the logistics company estimates it will deliver 28 million packages around the world, compared to its average day of 15.8 million packages. This holiday is expected to be a record-breaking year for UPS, which is forecasting that it will deliver 527 million packages between Thanksgiving and Christmas, surpassing last year’s total of 480 million.

Untraditional as it may be, the airplane is one way I routinely discover new snack foods. Another trendy way is subscription commerce, which gets consumers to sign up for a monthly box that comes loaded with a handful of products for a fee. The business model has been applied to an exhaustive list of categories: Makeup, coffee, food, kids’ toys and crafts (check out subscriptionboxes.com to get even more ideas).

Now Walmart is experimenting with the concept, too. Today it launches Goodies Co., a monthly service that will send you a package of sweets and snacks for $7, including shipping. The twist on this particular offering is something that the megaretailer does best — pricing things unbelievably low.

Other services charge anywhere from $12 to $30. For instance, the Knoshbox, aimed at foodies, costs $30; Love With Food offers a monthly rate of $12; and Sprig offers a mini-snack plan of 10 to 13 items for $26.95.

Goodies, which is coming out of beta today, is being run entirely by @WalmartLabs, Walmart’s tech team in San Bruno, Calif. While it continues in the experiment phase (as evidenced by not using the Walmart brand yet), the employees at @WalmartLabs will curate and source the brands — even though Walmart stores represent the largest grocer in the country.

Ravi Raj, VP of products for @WalmartLabs, said they looked at the subscription space and decided it was ripe for innovation, particularly on one front: “Pricing aggressively.”

For example, the October Goodies box came loaded with a number of items, including a single-serving fruit snack, a delectable snack pack of Nutella spread with dipping sticks, and some more oddball items, like coconut-flavored chips and crunchy brownies that tasted like Oreos. Raj said that the box, which will have six to eight items every month, is actually worth closer to $15, or double what they are charging.

Goodies also has a marketplace, like most subscription services, where consumers can come back to order. It also has a social community, where subscribers can post reviews to earn loyalty points. The points will be redeemable for free boxes or to buy items in the marketplace in the future. Subscribers can also upload pictures or share recipes.

Goodies has been beta over the past few months, and Raj said half of the 3,000 customers were writing reviews, and a third of them wrote reviews for almost every item in the box. “That’s great market research for suppliers,” he said, which may be why a brand would want to participate. Another one is more sales: “One of the most frequently asked questions,” he said, “is where can I buy it?”

I have a 32GB iPad 1 and need more space. I was considering purchasing another tablet but would like to get 128GB. Do you know of any tablets that offer that much capacity or if anyone is planning on coming out with one soon?

A:

As far as I know, the most storage built into any name-brand tablet today is 64 gigabytes, which is where the iPad tops out. Many, such as Google’s new Nexus 10, stop at 32GB. However, some tablets, like Microsoft’s new Surface RT, which can be ordered with 64GB, include an expansion slot that allows adding extra memory via a microSD card. Since such cards are available in 64GB capacities for around $60, that could theoretically allow you to have a tablet with 128GB of storage. However, check first to ensure the tablet can handle that much storage. Some only can make use of cards of up to 32GB. By the way, Microsoft says the Surface RT can handle a 64GB card and the planned Surface Pro, due early next year, will include a model with 128GB.

Q:

You recently recommended PeggyBank for its ability to convert old media and place it on the Web. While interesting, I do not wish to put our old media on the Web, but would appreciate the names of the best two or three companies who could put our media on DVDs.

A:

Well, first of all, PeggyBank itself can put your media on DVDs or flash drives. The Web vault it creates for you is free once you pay for a conversion, but you don’t have to use it. As for other companies that focus more on conversion to DVDs, I haven’t reviewed these in years, so can’t make a recommendation. But some leading ones are YesVideo, iMemories and ScanDigital. YesVideo, which performed well in a test I did in 2004, does conversions both directly and through popular merchants like Walmart, Costco, CVS and Walgreens. If you are primarily interested in putting photos, slides or negatives on DVD, a well-known firm is ScanMyPhotos.com. It also converts videotapes.

Email Walt at mossberg@wsj.com.

What is Showrooming?
Showrooming is the act of using a brick-and-mortar business as a “showroom” for the examination and testing of a product, prior to purchasing the same product elsewhere, online. Showrooming occurs every day, from the person who tries on a pair of shoes at the local running store and then purchases them online from an athletic shoe retailer, to the college student demoing a new laptop at Best Buy, who then buys the same one from Amazon.com.

In general, the reason for purchasing from an online store is a lower price. Sales tax doesn’t always apply. They also have lower overheard costs because they have no physical store or sales staff, and can pass those savings on to the customer.

The Shifting Landscape of Showrooming
Many fear that showrooming will be the demise of local businesses. Recent developments suggest otherwise. For example, the mighty Amazon.com is rumored to be planning its first physical store, suggesting that it perceives an advantage to going local.

Amazon is already in the process of getting closer to the customer by building new warehouses and testing self-service pickup lockers located within 7-Elevens, a move that is taking it just one step shy of having a storefront.

Plenty of big-box retailers, such as Walmart and Meijer, are fighting back by offering free next-day or even same-day shipping to their local stores from their online stores, directly attacking one of Amazon’s weaknesses.

Interestingly enough, in recent moves that rocked the retail world, both Target and Walmart declared they would stop selling Amazon Kindles because of people showrooming these Amazon products.

Advantages of a Showroom
An expensive showroom offers several distinct advantages for consumers that cannot be obtained from an online site. The instant gratification of being able to purchase a product and take it home right then and there is always a plus. There is the ability to touch, taste or smell the product, as well as the opportunity to try it on and check for fit, finish and size. Finally, there’s the ease of return in case of damage or a change of heart.

As the advantage of not charging sales tax appears to be waning, taking away one of the major cost advantages online retailers have enjoyed for years, local stores may just be getting a second lease on life.

Though less widely written about, showrooming among local stores is occurring more frequently than ever before, driven largely by the ubiquitous smartphone. Today, you can head to a single local store, test or try on your product of interest, and then walk out the door. From the comfort of your car, you can then visit a number of other local retailers’ Web sites or apps to see who has the best deal, and proceed there to make your purchase.

Technology Shifts Showrooming From Threat to Asset
Brick-and-mortar store owners realize that their staff and showrooms offer huge advantages over their online counterparts. Probably no greater example of this exists than Ikea, whose huge showrooms have placed products in room after room of connected experiences for years.

On a local level, savvy brick-and-mortar retailers are addressing showrooming head-on by encouraging smartphone use and turning the “threat” into an opportunity for further engagement. In general, price is rarely the sole determining factor for a purchase. Consumers want to make the best, well-informed purchasing decisions they can. Retailers, therefore, should help them by providing as much useful decision-making information as possible.

Since the dawn of the Internet age, consumers have come to rely on the ability to get answers to their most important questions with the click of a mouse — and now the touch of a screen — without having to speak with a salesperson.

Well-designed mobile Web sites that contain product comparisons, user guides and user reviews can keep the showroomer within a local business’ sphere of influence. Combine this with easily accessed coupons, deals and loyalty cards, and you not only eliminate any perceived benefit of going elsewhere, but you create reasons to purchase right at that moment.

Mix of Mobile and Brick-and-Mortar: Good or Bad?
Showrooming and mobile enablement are not going away, and the most successful businesses going forward will recognize this new reality and embrace it. I’m optimistic about the impact of mobile technology on brick-and-mortar stores. Mobile technology has the ability to help local merchants engage customers to a degree that was never possible before. The fact that Amazon is moving toward brick-and-mortar storefronts should be a sign that the physical store is far from dead.

The tools may change, but the end goal remains the same: To make a sale. The businesses that embrace mobile technology and leverage it, as opposed to trying to avoid or hide from it, will be the biggest winners in the end.

Scott Metcalfe is chief strategist of Fetch Local Customers, a Chicago-based online advertising firm that specializes in melding local search, social and mobile marketing, and local advertising technologies and strategies.

During the company’s last earnings call, CFO Peter Oppenheimer said Apple’s 372 stores collectively generated $4.1 billion in revenue. That’s a vast sum, and one that might lead you to believe that Apple sells most of its gear through its own stores. But that’s not the case, according to a new study by Consumer Intelligence Research Partners (CIRP).

Between December of 2011 and August of 2012, CIRP surveyed 1,227 U.S. consumers who purchased an iPhone, iPad, or Mac, and found that while Apple Stores sold by far the most Macs and iPads during the period, they didn’t sell nearly as many iPhones as the company’s retail partners.

In the U.S., Apple’s retail stores, along with the company’s online storefront, sold 47 percent of the Macs and 40 percent of the iPads purchased by the survey sample during December 2011 and August 2012. But they only sold 21 percent of the iPhones. AT&T and Verizon stores both sold more than Apple, with 28 percent and 26 percent shares of sales, respectively. And Best Buy and Amazon (via fulfillments) together sold nearly as many iPads as Apple itself.

“Apple has around 250 stores in the U.S., while Best Buy and Best Buy Mobile total 1,300, and AT&T, Sprint, and Verizon have over 5,000 combined,” CIRP partner Mike Levin told AllThingsD. “Clearly, the Apple stores are much more productive on a per-unit basis, but their relatively low store count keeps them reliant on the carriers and Best Buy, not to mention Walmart, Target and others, for the vast majority of their retail sales.”

Ultimately, Apple’s retail partners are as critical to the company’s success as its own stores. Sure, the typical Apple Store might cater to 17,000 visitors per week, but that foot traffic translates to a smaller-than-expected share of the company’s overall business. As CIRP co-founder Josh Lowitz told AllThingsD, “Everyone who lives in an Apple Store city thinks that is where everything happens, but you can’t sell 40 million plus iPhones in a year through just 250 stores.”

But it’s not what you may think. Sales are forecast to increase because there are two additional days between Thanksgiving and Christmas this year, giving consumers more time to shop than they had last year.

That was the conclusion of a 15-page report written by analysts at Citi Research.

What’s more, the report said that retailers will see very little impact from people making purchases on mobile devices like phones and tablets, or on social media sites like Facebook or Pinterest, even though there’s a lot of hype surrounding those two areas. “While mobile and social will likely grab headlines this season, retailers should concentrate on their ‘core technologies,’ namely e-commerce nuts and bolts, and strategies that integrate their traditional stores [with online ordering and in-store pick-up],” concludes the report.

The document, which was distributed to Wall Street investors, includes data from several key industry sources, including Shop.org’s holiday outlook, ChannelAdvisor’s holiday outlook and information from Retail Systems Research.

Overall, it finds that online spending is expected to increase by 20 percent this year, which is slightly less than what the industry experienced in 2011 when it reported growth of 23 percent. In general, e-commerce continues to see significant gains as spending shifts from offline to online. Mary Meeker, a partner at Kleiner Perkins, noted in a report last year that e-commerce in the U.S. was making up only 8 percent of overall retail.

While it indeed takes a lot for companies such as Amazon, eBay and Walmart to see an impact from changes, consumers are shifting their behavior to mobile and social, although probably not as fast as investors would like to see.

EBay is one of the most vocal companies in breaking out the impact of mobile. It told AllThingsD recently that its mobile applications have now been downloaded 100 million times. Furthermore, it is projecting sales on mobile devices to hit $10 billion, which is double what it did last year. That roughly pencils out to 16 percent of the company’s revenue, if you base the calculation off of last year’s gross merchandise volume.

In contrast, Citi cites data from Forrester Research that says smartphones will account for 3 percent of e-commerce this year, increasing to 7 percent in 2016.

Social commerce is less mature, although that’s starting to change, too. According to research conducted by Monetate, which helps Best Buy, Urban Outfitters and other clients market their Web sites, Pinterest came out of nowhere over the past year to become one of the most significant drivers of social traffic to e-commerce. In the first quarter of 2012, Facebook made up 60 percent of the social traffic to retailers, while Pinterest made up 26 percent; by the holidays, it could surpass both Facebook and Twitter.

Citi’s report quoted specific data from Booz & Co. that suggests that revenue from physical goods sold on social networks will grow by 93 percent per year in the U.S., reaching $14 billion by 2015.

Citi’s biggest piece of advice for retailers is to provide as many choices to consumers as possible. For instance, users should be able to order online and pick up items in the store; retailers should have their databases synced so that they see the same prices in the store as they do online. Perhaps one of the most surprising nuggets was that brick-and-mortar retailers shouldn’t necessarily be losing out this holiday — after all, 90 percent or more of sales still occur offline.

Walmart has stopped selling all of Amazon’s hardware, a move it chalks up to its “merchandising strategy.”

Reuters first reported the news. Here’s the statement from Walmart PR (no comment from Amazon):

Recently, Walmart Stores, Inc. made a business decision to not carry current Amazon products beyond our purchase commitments and existing inventory.

Our customers trust us to provide a broad assortment of products at everyday low prices, and we approach every merchandising decision through this lens.

We will continue to offer our customers a broad assortment of tablets, eReaders and accessories at a variety of great price points. This decision is consistent with our overall merchandising strategy.

So what does that really mean?

Here are two potential theories, which aren’t mutually exclusive:

This is about price: Walmart can’t get the margins it wants from Amazon.

This is about more than price: Walmart sells a lot of books, music and video from its stores, and that may lead to a conflict with Amazon, which has made no bones about the fact that it views its hardware as retail outlets for everything else it sells, like books, music and video.

The only problem with both of those theories is that you could apply some or all of them to all of Walmart’s other hardware suppliers. The retailer continues to sell tablets from Apple, Google and Barnes & Noble, all of which drive hard bargains themselves, and all of which compete with Walmart for media sales, too.

Binary code illustration by Matej Pavla

According to this line of thinking, Google proved this same lesson years ago when it showed that PageRank could outperform keyword extraction techniques (used by other search engines at that time) by leveraging data from outside the page itself (i.e., the votes that page creators made by choosing their outbound links, which defined the network topology of the Web). History is repeating itself now with Facebook, which is using detailed data about friendships (which defines the social network topology of the real world) to give it a leg up over other media companies. It is this same underlying notion that led Alex Rampell, the CEO of TrialPay, to say, “Payment data is more valuable than payment fees.” According to Alex, “Connecting the bank accounts of buyers and sellers will never be as valuable, nor defensible, as connecting buyers and sellers.”

Is this love of more data really well-founded? When do you know enough? In a world in which the amount of existing data is doubling every year, when do you shift your focus from yet another incremental attribute to writing a better algorithm to help you handle the deluge? How do you avoid being overwhelmed by the noise? Is there a tipping point at which more is less?

To better illustrate the problem, we need only remember Solomon Shereshevsky — a man with an unusual mind, who remembered in great detail everything that happened to him. His problem was that even though he remembered every detail, his brain failed to create high-level connections between the details. For example, if he saw a face, he remembered it exactly, but he failed to connect that memory to a memory of the same face with a different expression. Therefore, he had trouble connecting these faces with the person they belonged to. Similarly, when you spoke to him, he could memorize every word you said, but he would have trouble understanding your point. (A.R. Luria, “The Mind of a Mnemonist: A Little Book about a Vast Memory.”)

A healthy mind, on the other hand, has a more successful strategy for dealing with what could otherwise be data deluge. According to Leonard Mlodinow, the author of “Subliminal,” our brain processes 11 million inputs a second. It does so gracefully, because when we experience something in the real world, we aren’t just adding an isolated memory into our minds. The brain quickly connects the salient features of the memory to an entire lifetime of connected memories, including images, smells, sounds, touch and emotions. Think about how many times a smell has helped you retrieve a memory about an event. A simple fact can be transformed instantly just by being associated with other facts. That is why someone who records every fact but fails to extract the meaningful connections is at a severe disadvantage.

This leads us to our central point. Algorithms shouldn’t be one-way filters that take data out and put them to use outside of the system. Rather, the algorithm output is itself data which enhances the data asset. Even though BlueKai processes one trillion data transactions a month, we believe that the real value isn’t in the raw volume, it is in the degree of connectedness that is analytically overlaid onto the data to make it more interrelated. For example, the addition of data on sport water bottle purchase intent doesn’t just enhance the water bottle category — that might be rather uninteresting. By analyzing the behavior, for instance, of people who purchase water bottles for biking, we learn that these same people tend to own high-end vehicles. Apparently, people who like biking for sport tend to have the drive and money to enjoy a more expensive vehicle. These bicyclists also tend to take more island vacations, and, not surprisingly, so do their friends. Therefore, an isolated behavior, when evaluated and connected, can produce unexpected value.

This brings us back to the original question. If you have to choose, having more data does indeed trump a better algorithm. However, what is better than just having more data on its own is also having an algorithm that annotates the data with new linkages and statistics which alter the underlying data asset. That way, the addition of each new algorithm radically improves the underlying data asset, just like the addition of a sensory input improves the way we experience the world around us.

Are you living in a world in which more data provides diminishing returns (like Solomon Shereshevsky), or are you living in a world in which more data truly is better?

Omar is the co-founder and CEO of BlueKai, the industry’s leading data activation system that supplies both Fortune 100 companies and leading publishers with solutions for managing and activating first- and third-party data for creating highly effective customer and marketing campaigns. Omar’s previous roles include Chief Advertising Officer for mobile search and advertising solution Medio and Chief Marketing Officer for early behavioral data leader Revenue Science.

The technology, built by the company’s San Bruno, Calif., office, was designed over the past 10 months by 15 engineers, and is replacing Endeca, a third-party search engine acquired by Oracle.

Walmart’s move to managing its own search in-house mimics the behavior of other online retailers, like eBay and Amazon, rather than its conventional brick-and-mortar peers. Online merchants are always fine-tuning the search experience, based on the logic that sales will increase if consumers can find what they are looking for.

Since implementing the new search technology three months ago, Sri Subramaniam, VP for @WalmartLabs, said that has already proven to be true — Walmart has seen a 10 percent to 15 percent lift in sales.

The team named the search engine “Polaris,” after the North Star, the brightest star in Ursa Minor, because it is the group’s guiding light for where they want to go with the site’s capabilities.

One problem Subramaniam said that Walmart faced — one that neither Amazon or eBay have to deal with — is having fewer items in its inventory. That may sound counterintuitive, given Walmart’s reputation as a mega retailer, but clearly, online retailers have a limitless catalog that would never be able to fit into a Walmart storefront.

“We have fewer items than Amazon and eBay,” Subramaniam said. “So the search has to work much harder at matching.”

He provided a few examples of how things have changed:

• Before, a search for “house” would have returned results for a doghouse or a dollhouse. Now, search items also include the hit TV series.
• Before, when users searched for “flat,” flat-screen TVs came first. Now, it also includes women’s shoes, or “flats.”
• Before, a search for “garden furniture” would return a ton of links to lawn chairs, tables and other backyard products. Now, Walmart will return a topic page that enables users to browse items by topic area. It also highlights items for sale.
• Before, a search for “chlorine tablets” might have returned results for the mobile device. Now it also shows pool equipment.

The new search engine technology has rolled out to both the Web site and mobile site in the U.S. Walmart is now planning to roll out internationally to Brazil and other countries. @WalmartLabs was created in part by the $300 million acquisition of Kosmix, a data company based in Mountain View, Calif.

A new survey from the magazine places the Netflix streaming service sixth in user satisfaction, behind, well, just about everybody: Walmart’s Vudu, Apple’s iTunes, Amazon’s Instant and Prime offerings, and Hulu. The big ding against Netflix: It doesn’t have a selection of stuff people want to see.

Anyone who follows digital video will see the obvious asterisk that should come with the ranking: It compares apples and oranges.

Netflix is a subscription video-on-demand service, which means it gets a much smaller selection of titles (particularly movies), than a la carte rental services like Vudu and iTunes. It’s like complaining that the Endless Shrimp special at Red Lobster doesn’t include snow crab legs. Different things, different economics, different prices.

But most people don’t follow digital video — they just want to watch stuff. And carping about selection is not a new critique — it’s the one you hear anecdotally from lots of people who use or have used Netflix (kids are a different story).

Hastings could rectify this, at a minimum, by adding a la carte rentals in addition to his subscription offerings. But he’s remained ardently opposed to the idea, for whatever reason.

Near-term, this won’t be as problematic for Hastings as the disappointing growth guidance he offered up Tuesday afternoon, which led to yesterday’s stock dive. And I personally stopped taking Consumer Reports that seriously in March, when they warned that the new iPad could kinda maybe get not exactly hot but sort of tepid. But for lots of people, Consumer Reports is still Consumer Reports, and their word — or at least word of their word — carries lots of weight.

Small consolation prize for Netflix: Consumer Reports thinks the company’s original DVD-by-mail business — the “old fogey discs” business, in Hastings’s words — is the best disc rental service. But that’s the business Hastings has decided to let fall away.

Update: The Consumer Reports reps who sent me a preview of their article have now asked me to pull the screenshot of their ratings graphic, which they don’t want republished beyond their magazine and Web site. That’s frustrating, but I’ll do my best to replicate the important stuff here:

Streaming services (name/reader score):

1. Vudu/76
2. iTunes/75
3. Amazon Instant/74
4. Amazon Prime/70
5. Hulu/70
6. Netflix/69
7. Video-on-demand channels/68
8. Hulu Plus/66

Disc rentals:

1. Netflix/78
2. Independent stores/77
3. Redbox/77
4. Blockbuster/71
5. Blockbuster Express/69
6. Blockbuster Total Access/68

Scott Olson | Getty Images News

I believe we’re approaching a sea change in retail where physical retail is displaced by e-commerce in a multitude of categories. The argument at a high level:

• Online retail is relentlessly taking share in many specialty retail categories, resulting in total dollars available to physical retailers stagnating or even declining. This is starting to put intense pressure on their top lines.
• Physical retailers are very highly leveraged and often have narrow profit margins. Material declines in their top lines make them unprofitable and quickly bankrupt.
• Online retail will benefit greatly from the elimination of their physical competition and their growth should accelerate.

Let’s start with the historical context. What’s been happening in retail in recent decades is a perfect example of creative destruction in action. In a little over a half century, multiple generations of specialty retailing concepts have been created and subsequently destroyed. The widespread building of large suburban shopping malls after World War II led to the development of the specialty retail chain store, at the expense of independent, sub-scale “Main Street” retailers. A few decades later, many of these mall-based specialty retail chains were in turn crushed by the development of “big box” retailers, who had had substantial cost, pricing and selection advantages. And currently, many of these big box retailers have been in turn devastated by the rise of e-commerce and its substantial capital and cost advantages. E-tailers don’t need to build, rent, stock and staff a large chain of individual stores; instead, they enjoy significant efficiencies from centralization. An example of their relative efficiencies can be seen in labor: Revenue per employee for Amazon is $0.9 million per year vs. $0.2 million at Walmart.

Book retail provides a good example of this evolution. Independent bookstores gave way to mall-based chains like B. Dalton and Waldenbooks in the 1960-70s, which in turn gave way to big box chains like Barnes & Noble and Borders in the 1980s, who in turn are giving way to e-commerce players (particularly Amazon). B. Dalton, Waldenbooks and Borders are now out of business, and Barnes & Noble is struggling to morph itself into an e-commerce and e-book company before its physical bookstore business evaporates.

I believe that the demise of physical bookstores is just the canary in the coalmine for all of the big box players, and that the same creative destruction will play out across specialty retail. It’s already happened in music and video retail: Tower Records, Virgin Music and Blockbuster Video are all history. And it’s starting to happen in other categories.

The steady, relentless share gains of e-commerce have been widely documented. According to the U.S. Census Bureau, e-commerce had grown to seven percent of total retail by 2010. But there is wide variation in online share by category:

Source: U.S. Census Bureau, Annual Retail Trade Survey

The large “supermarket” categories of food & beverage and health & personal care have tiny online participation, but the specialty retail categories have large and rapidly growing online shares. And the huge category buckets reported by the U.S. Census probably obscure the magnitude of some of the share impacts. For example, the bulky, heavy appliances in the “electronics and appliance” bucket probably haven’t gone online as fast as electronics, suggesting that online share in electronics is probably much higher.

And things get even more interesting when you look at this in terms of dollars, such as in the electronics and appliance bucket:

Source: U.S. Census Bureau, Annual Retail Trade Survey

Total category sales have stalled over the past half decade, likely impacted by the housing bust. But the steady growth of online sales is causing the portion of the market available to offline retailers to be substantially pressured. Total offline sales among all Electronics and Appliance retailers were lower in 2010 than they were in 2004!

So, imagine you are Best Buy. It’s the leading electronics retailer in the U.S., also selling computers, media and appliances. It’s historically been among the most innovative and successful of the big box retailers, and was named “specialty retailer of the decade” in 2001 by Discount Store News. Between 1998 and 2008, the company ripped off 10 straight years of positive comp store sales growth; compounded, its comp store sales were up a staggering 75 percent over this period.

But as we see above, the portion of the market available to offline retailers in Best Buy’s verticals is shrinking due to withering competition from online players with substantial price and selection advantages, exacerbated by “show-rooming” enabled by mobile devices (see my previous post about Belly). Best Buy’s amazing 10-year run in comp store sales growth screeched to a halt in 2009, and it has had negative results three of the past four years. Many of its offline competitors have already gone out of business, as No. 2 player Circuit City did in 2009.

You get a sense of the hurricane that Best Buy is trying to navigate through when you look at its performance by category:

Source: Best Buy

It’s flat-out brutal when your No. 1 and No. 3 categories have dropped 11 and 37 percent respectively in just two years.

Once upon a time, I was CFO of The Disney Stores Worldwide. One thing I learned there is that physical retail is very highly leveraged as a massive chunk of the expense structure is fixed. Each store typically has a long-term lease with fixed rent payments and requires minimum staffing and inventory to operate. And stores require warehouses and trucking fleets to house and transport inventory, and central staffs to manage it all. Due to these high fixed costs, even small changes in comp store sales can enormously impact profitability. I experienced this in vivid detail at The Disney Store. We enjoyed record profits behind surging merchandise sales for the run-away hit “The Lion King” in 1994, but the following year’s results were hammered by anemic product sales for the much-less-successful “Pocahontas.”

Relatively small declines in comp store sales, if sustained, can quickly prove fatal to physical retailers due to this leverage. The Circuit City example is instructive here. Its bankruptcy was preceded by just six quarters of declining comp store sales. The company essentially broke even in its fiscal year ending in February 2007; it declared bankruptcy in November 2008 and started liquidating in January 2009. It is also notable that Circuit City’s bankruptcy has had only modest benefit for Best Buy, as did Borders’ bankruptcy for Barnes & Noble. Not even the elimination of the largest competitor provides material reprieve from brutal market headwinds.

Here is the case for e-commerce acceleration. Continued share gains by e-commerce players shrink the pie available to physical retailers. Marginal physical players go bust, providing only a temporary boost to the remaining offline players and a sustaining boost to online players. But the underlying market dynamics stay the same, and pressure again builds on the remaining physical players. When their top-lines drift below their highly leveraged water lines, they too drown and liquidate. At that point, e-commerce becomes about the only place where consumers seeking a broad selection of merchandise can go. It’s essentially unopposed.

This Darwinian struggle for survival has already played out in music and is in the last act in books and movies. In electronics, Best Buy is the last man standing, and the pressure is building. It has virtually no margin for error, as its operating margin is down to two percent. When it succumbs, (and I believe this is a “when” and not an “if” unless it’s able to pull off a radical transformation of its model), e-commerce will become the only place to find a comprehensive selection of electronic products. And other specialty retail categories like apparel and home are not that far behind their media and electronics colleagues.

We’re extremely bullish on the prospects for e-commerce, and we’re very bearish on the prospects for offline retailers who compete head to head with them. The implications are broad. To paraphrase Schumpeter: We believe that offline retailers that cannot deliver a differentiated value proposition to consumers will be destroyed by a new generation of online retailers that is being created before our eyes.

Jeff Jordan would like to thank his colleague Wei Lien Dang, who provided strong analytic support for this post. Jeff is a general partner at Andreessen Horowitz and is on the boards of AirBnB, Belly, Fab.com, Circle, Lookout and Pinterest, as well as OpenTable, Wealthfront and Zoosk. Previously, Jeff was president and CEO of OpenTable, which he took public in 2009. Before OpenTable, Jeff was president of PayPal, and he was previously the SVP and general manager of eBay North America. He blogs at http://jeff.a16z.com/.

The acquisition being announced today on the company’s blog is Llustre, a U.K. copycat of Fab that is identically focused on selling home decor, apparel and other items from independent designers. Terms of the deal were not disclosed.

Fab previously purchased Casacanda in Germany and FashionStake in the U.S. to launch a clothing vertical.

Given that Fab has only been around for a year and has seen such significant growth, it appears to have identified just what consumers want: Hard-to-find, quirky and stylish products, gadgets and clothing that are not easily found in Target, Walmart or even on Amazon.com.

The inventory may be shallow, but the product types are vast. Yesterday, the site was selling earphones shaped like bullets, vintage-looking vases, toilet seats that function as bidets and motion-activated cameras for the outdoors. In other words, it’s a hipster’s paradise.

It took Fab four months to hit one million subscribers, six months to hit 1.5 million and 12 months to hit 4.75 million. Fab has not been shy about its successes over the past year, and has raised lots of capital along the way, including a $40 million round in December from Andreessen Horowitz and others.

Now, Fab is claiming it is entering Europe in a serious way, and expects the region to contribute about 20 percent of the New York-based company’s sales this year. Fab is now shipping to 20 countries; it has 360 employees in five offices, including New York, Berlin and London.

Llustre has also moved quickly since launching only two months ago. Founded by Tracy Doree and Vivienne Bearman, it has 25 employees, works with more than 500 designers; membership and orders have tripled in the past five weeks to some unknown quantity.

Starting today, Llustre will become Fab UK. Doree and Bearman will remain on board, heading merchandising and product and operations, respectively.

In an interview, Joel Anderson, president and CEO of Walmart.com, said the new feature is targeting people who don’t have access to debit or credit cards.

“The fact that only 15 percent of our transactions are done in the form of credit at our stores means there’s a large percentage of Walmart customers who are dependent on cash to transact online. We definitely think it is a big opportunity,” he said.

When using “Pay with Cash,” customers purchase items online and then have 48 hours to go to a local Walmart store or a Walmart Neighborhood Market to pay for the order. Once the order is paid for, the items will then ship.

The concept is fairly simple in a world where so much energy is being focused on futuristic stuff, like waving your mobile phone to pay for things and digital wallets.

But by opening up the site to cash-only users, Anderson said customers will now have access to the hundreds of thousands of items that are not carried in the store. Additionally, if it is a gift, they will no longer have to buy an item in the store and ship it themselves.

Anderson said Walmart built the technology in-house, but other services are cropping up that offer similar benefits.

For instance, Mountain View, Calif.-based PayNearMe allows people to make purchases at various online retailers and pay for them at 7-11’s, where a clerk scans a barcode and collects the cash.

Who wants to haul their discs to a store — and take out their credit card — to do something that should work at home, for free?

BTIG Research’s Rich Greenfield has the same take, more or less. But Greenfield has actually gone ahead and tried the service out (registration required), and he thinks the experience itself is … really good:

“We believe Vudu is a very well done iVOD/EST service and, at worst, Vudu will gain far greater consumer awareness from the industry’s disc-to-digital marketing campaign.”

I still think the overall concept is flawed here. If Hollywood wants people to embrace this idea, which is designed to promote high-margin movie purchases instead of lower-margin rentals, it shouldn’t involve travel and an upfront payment.

And some of the fine print will trip people up, as well. As I noted last month, Walmart’s scheme comes with some important asterisks, like the fact that Disney/Pixar titles won’t work, and that iPad users can only stream the files to their machine, and can’t download them.

But give Walmart credit for a digital product that seemingly does at least some of what it ought to do, right out of the box. Greenfield has a seven-minute walk-through of the process (spoiler: contains no violence, nudity or adult themes), if you’re interested:

Let’s assume that some of you are interested in taking your old DVDs to Walmart, and paying up to $5 a disc so you can access the movies on them from Vudu, Walmart’s cloud-based service. Fair enough — different strokes and all of that.

But we’re going to have to shrink the size of this theoretical group a bit. Because Walmart’s new “disc to digital service” won’t work for:

• People who want to watch Disney or Pixar movies. Disney is working on its own cloud service, and isn’t joining the five other major studios on this one.
• People who want to download the movies to iPhones and iPads. Users of iOS can stream Vudu movies to their devices, but can’t keep them on their machines.
• People who want to stream or download their movies on Android phones or tablets. I’m sure there’s a good biz-dev reason that Vudu doesn’t support Google’s OS, because I can’t think of a technical one.

You can download and stream movies to Windows or Mac PCs. Walmart says Vudu will work on “more than 300” devices, but I only count 211 on the service’s Web site, and most of those are Internet-connected TVs and Blu-ray players.

I guess there are some people who would rather go to Walmart and upload their movies instead of ripping them directly from their DVDs to their PCs, even though it’s very easy. Maybe they are very, very interested in obeying the law, because — weirdly — it’s technically illegal to copy a movie you own, even for personal use.

But I can’t figure out who’s going to use disc-to-digital to watch movies on their TVs, since it’s very likely they already have a machine that plays discs sitting right next to their TVs. (Based on the promotional video Walmart has rolled out, it can’t either. As you can see at the bottom of this post, it’s playing up disc-to-digital’s mobile advantages.)

I’m also pretty skeptical that anyone who doesn’t have kids will have much interest in making digital copies of movies they already own. The reason that Hollywood is working on schemes like this to promote movie ownership is that most people have figured out they’d rather rent. Not because they’re constrained by device compatibility, but because they only want to watch a movie once or twice.

Kids’ movies are the big exception here. I think lots of people would jump through lots of hoops to get copies of kids’ movies on as many devices as possible. But the absence of all those Disney movies, and all those Pixar movies, sure looks like a problem for that pitch.

But I don’t want to end the evening on a negative note! So take a look at Walmart’s video. It’s pleasant enough. And perhaps at some point, Walmart figures out how to rope Disney in, add more devices to its lineup, and actually deliver on the promise sketched out below:

The push represents an effort by frustrated merchants to get the upper hand in the fast-developing market that turns cellphones into payment devices. The race pits the retailers against banks, credit-card networks, telecommunications firms and technology companies.

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