Dive Brief:

• Walmart and Microsoft are planning to open a "cloud factory" early next year within Walmart's technology incubator building in Austin, Texas, that will be tasked with migrating the retail giant's internal business applications to the Microsoft Azure cloud, among other efforts, according to a Microsoft blog post.

• The new section of the incubator will be staffed by about 30 technologists from both Walmart and Microsoft. The 4.co team, named for the building's location at Fourth and Colorado Streets in Austin, also will focus on the development of new cloud applications, Microsoft said.

• The companies, which announced a five-year cloud partnership this past July, also have discussed the creation of Walmart "micro-clouds" within Microsoft Azure that would analyze store-level data drawn from the Internet of Things networks operating in individual stores, according to comments from Clay Johnson, Walmart enterprise chief information officer and executive vice president.

Dive Insight:

This is one of the first big moves to be made public since these two industry giants announced their partnership almost four months ago. At that time, Walmart and Microsoft said they would work together to migrate Walmart's vast IT holdings to the cloud, but this announcement specifies where and how technologists from both companies will collaborate. Describing this new team and its office as a "cloud factory" supports the notion that they are building an operational technology architecture that will be the nerve center of Walmart stores for years to come.

Johnson's comments also illuminated how Walmart's other ongoing technology efforts in the realms of IoT and artificial intelligence could be enhanced for the collaboration with Microsoft. Regarding IoT, Walmart has placed thousands of sensors on in-store HVAC and refrigeration systems that are designed to help the retailer predict potential equipment failures, as well as save money on heating and cooling. Having these networks feed data into the cloud can help Walmart analyze data on a multi-store or regional scale and share learnings between stores.

Johnson also mentioned the effort to deploy natural language processing technology and AI-based chatbots in operations support and employee assistance. Walmart can now tie into Microsoft Azure Cognitive Services, which enables cloud-based APIs for bringing AI capabilities to bear in more business situations and applications.

This partnership is still in its earliest stages, but by working with Microsoft and bringing the software giant's experts and expertise into its own house to create a new collaborative team, Walmart is carving out a path for other major retailers to follow. Walmart and others don't want to have their internal IT assets and their innovation aspirations linked to Amazon Web Services, the cloud computing unit of their top e-commerce competitor. (Walmart has also reportedly pressed its suppliers to leave Amazon's cloud.) 

Working closely with another large, like-minded technology partner that they don't compete with allows Walmart to offload internal resources and applications to a cloud they can trust. But, the real long-term value may come in assembling top tech talent from both companies under one roof to collaborate. This can lead retailers to additional innovations, but without losing control of their own technological evolutions.