Walmart buying a stake in TikTok may seem like a non-sequitur at first, but the prospect of the giant retailer joining Microsoft’s bid for the video-sharing app's U.S. operations actually makes all the sense in the world to some informed observers.

Yes, Walmart’s involvement would likely scare away other retail advertisers on TikTok. But that’s a big part of the point. Walmart would get potentially exclusive access to the fastest-growing social network and its predominance among Gen Z consumers. The same first-party data the Trump administration fears getting into the hands of the Chinese government suddenly could become a huge asset for the world’s biggest (and U.S.-based) retailer instead.

Walmart’s media business, now substantially trailing Amazon and facing increasingly strong competition from Target, Kroger Co. and CVS, would also be boosted by an asset no other retailer can offer. And its e-commerce business, now significantly behind Amazon and being out-grown by Target, despite nearly doubling last quarter, could get a boost from a social platform that could transform how the next generation of consumers shops.

Walmart confirmed a report from CNBC regarding its interest in TikTok. “The way TikTok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets,” Walmart said in a statement. “We believe a potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses. We are confident that a Walmart and Microsoft partnership would meet both the expectations of U.S. TikTok users while satisfying the concerns of U.S. government regulators.”

Battle for first-party data

“I think it’s brilliant,” says Rachel Tipograph, CEO of MikMak, which offers shoppable ad formats on TikTok, Facebook, Instagram and other digital platforms. Walmart’s interest confirms her thesis that the major battle in digital media and e-commerce is for access to first-party data involving all kinds of players. So in that context Walmart joining Microsoft to edge out Netflix or any other suitor to acquire possibly the most valuable emerging first-party database in the U.S. makes perfect sense.

“You have to surmise that TikTok’s advertising platform will then, using Walmart’s first-party data, be used to drive transactions at Walmart only,” Tipograph says. “If you look at e-commerce traffic, social is the top or No. 2 source of traffic. So they’re literally going to cannibalize one of the largest referral streams for e-commerce and only allow it to go to Walmart.”

TikTok also gives Walmart access to a huge and rapidly growing amount of consumer time, another precious resource, Tipograph says. One Walmart veteran, who spoke anonymously because he wasn’t authorized by his current employer to speak on the record, says Amazon’s huge advantage in content with Prime Video was long the envy of its big brick-and-mortar competitor. Walmart tried for years to create a viable alternative in Vudu, he says, but none of its efforts got much traction, so it agreed to sell Vudu to Fandango in April.

TikTok would give Walmart Media Group exactly what it needs but couldn’t develop with Vudu, says Tal Chalozin, chief technology officer of Innovid, a video advertising technology platform that works with major brands to manage digital campaigns.

“They tried a network using Walmart shopper data,” Chalozin says. “It doesn’t work when you don’t own the whole value chain. TikTok is big enough and it could be influential for them.”

While Chalozin previously felt Walmart needed to focus less on social and more on TV, he believes TikTok might turn out to be a good alternative because of its entertainment focus. “If you want to build an Amazon competitor and you want to go wide,” Chalozin says, “you need to play more in entertainment.”

The Holy Grail of user engagement

One big question in the deal, the Walmart veteran says, is whether buyers of the U.S. business get access to the ByteDance artificial intelligence engine behind TikTok’s content recommendations. That’s the secret to ridiculously high user engagement that’s made TikTok “digital methadone” in China and the U.S. alike, he says.

Tipograph says the AI behind TikTok content recommendations could have a huge effect on Walmart e-commerce. Today, Facebook and Instagram are well ahead of TikTok in their direct-response e-commerce platforms, she says. “But with TikTok, the organic engagement is unprecedented. Typically we advise clients that if you want to drive e-commerce sales online, you’ve got to do it through paid media or influencers. Organic is not where you’re going to see the growth. But with TikTok, we see organic conversion unlike with any other platform.”

Tipograph believes applying TikTok’s content algorithm to Walmart e-commerce could be “game over,” solving the age-old challenge of converting e-commerce from primarily a search-driven experience to more of a discovery process.

While Walmart owning a piece of TikTok likely would scare off other retail advertisers, it would substantially increase interest in the wide world of marketers who supply Walmart, says Michael Stich, chief business officer of WPP’s VMLY&R. “It would put pressure on Target and Kroger to figure out how to respond,” he says. While TikTok is behind Facebook and Instagram on direct e-commerce capabilities, Microsoft and Walmart would likely help close that gap, Stich says, while TikTok would help Walmart close its gap with Amazon Prime on original content.

Contributing: Garett Sloane