News came yesterday that Google would invest US$550 million in cash in China’s second largest retailer JD.com Inc., as part of a strategic partnership.
The two partners plan to collaborate on a range of strategic initiatives, including joint development of retail solutions and making some products of JD.com available for sale through Google Shopping channels in multiple regions.
Why did Google invest in JD.com? What do both companies want from this partnership? Here are some expert analyses, courtesy of Chinese news portal Bajiuling.
Managing Partner of SkyChee Ventures
With the investment from Google, JD.com will undoubtedly make better use of Google’s current online traffic to compete with e-commerce giants such as Amazon and Alibaba in the international market.
Tencent and Google, JD.com’s domestic and international allies, both did not invest much in e-commerce in the past and are now determined to make stronger foray into e-commerce to leverage its massive traffic. Google’s investment in JD.com will surely aim at helping JD.com’s international expansion.
JD.com and Amazon have similar business models, different from Alibaba, which provides a platform where buyers and sellers connect. Amazon has made great investment in search engine ads and has placed more than 5.8 million keyword ads on Google AdWords, Bing, and Yahoo. The number of its ads exceeds 6 million. This also means that Amazon depends on Google to some extent.
During the first quarter, Google’s smart speakers Google Home and Home Mini sold 3.2 million units, surpassing Amazon’s 2.5 million. It reversed the sales ranking for the first time for smart speakers in the U.S. Shopping is one of the key future functions for smart speakers, and Google’s investment in JD.com is preparing for the future possibility that Google smart speakers providing that voice-generated shopping orders on its smart speakers, and having JD.com as a partner strong in supply chain and logistics will be greatly beneficial.
Associate Professor at Shanghai International Studies University
For Google, the US$550 million investment is not a big investment. Taking less than 1% shareholding of JD.com is tiny when compared to the 10.1% held by Wal-Mart.
The investment was made via Google’s operating department, not by Google’s parent company Alaphabet. Therefore, this deal could be less about strategic consideration, but more for technical considerations. This investment aims at users in the Asia-Pacific region, rather than global users, as expansion regionally makes more sense.
Google’s market value was surpassed by Amazon last year, as the proportion of searching and discovering products via search engines has been declining. Google strategically needs to join forces with a mature e-commerce company like JD.com to compete with Amazon.
In the cloud computing market, Microsoft and Amazon have far transcended Google. Google needs to work with JD.com and other companies to speed up its cloud computing business.
Finally, Google is unable to enter the Chinese market because of policy reasons. It can be understood that this deal gives Google an entry point to the Chinese market.
For Google, investing in JD.com is a very cost-effective method, and JD.com’s self-built logistics solution is perhaps Google’s main interests.
The cooperation with Google is an important step for the globalization strategy of JD.com. In developing the European and American markets, Google can support JD.com and help divert online traffic to JD.com.
Liu Qiangdong, founder of JD.com, once said that its strategic investors Tencent, Wal-Mart and Google can form an "unrestricted retail" ecosystem. In this ecosystem, Tencent provides social network-based e-commerce, Wal-Mart provides offline channels, while Google providing overseas traffic, brands and platforms.