Why Google, JD.com and Tencent are coming together

June 19, 2018 15:05
A strategic alliance among Google, Tencent and JD.com would strengthen their position against major rivals and allow them to expand faster. Photo: AFP/Reuters/Bloomberg

Some might say that China's e-commerce market has really no impact on the global market. But if that is true, why would internet giant Google spend US$550 million for a stake in China’s No. 2 e-commerce platform JD.com and agree on a strategic partnership with the company to jointly develop a smart retail strategy?

The two companies would like to leverage on each other's strength to take the e-commerce market leaders: Alibaba in China and Amazon outside the China market.

Both companies described the investment announced on Monday as one piece of a broader partnership that will include the promotion of JD.com products on Google's shopping service.

This partnership with Google opens up a broad range of possibilities to offer a superior retail experience to consumers throughout the world, said Jianwen Liao, JD.com's chief strategy officer, in a statement.

This could help JD.com expand beyond its base in China and Southeast Asia and establish a meaningful presence in US and European markets.

JD can sell their products on Google Shopping platform in the future. Google, meanwhile, said the investment would not involve any major new Google initiatives in China, where its services are currently blocked.

Google officially has no servers in China starting from 2010 after the company had ceased all servers operation to voice out its discontent over Chinese government censorship of its search results.

But today, as China's economy strengthens further, especially in the field of technology, Google is finding the need to reconnect with the the country, where its major rivals such as Apple and Amazon have a maintained a degree of presence.

Apple, for example, has its own retail store network in key cities and has partnered with a state-owned firm to provide iCloud service to China accounts. Amazon also maintains a relatively small scale of e-commerce platform in China.

Google and JD plan to jointly develop retail solutions in Southeast Asia, the United States and Europe.

By applying JD’s supply chain and logistics expertise and Google’s technology strengths, the two companies aim to come up with next-generation retail infrastructure solutions, offering personalized and frictionless shopping experience to customers. 

JD also plans to make a selection of high-quality products available for sale through Google Shopping in multiple regions.

Some industry observers said the tie-up between Google and JD.com will also draw Tencent into a strategic tripartite alliance as they have common rivals in Alibaba Group and Amazon.

In fact, Google is facing escalating pressure from Amazon in the technology field as the latter is using its e-commerce platform to launch a series of new and innovative services such as the Alexa digital assistant, which is now the most popular service in the field.

Google, whose Google Home product competes with Alexa, can leverage on JD.com listings to sell more products to US customers to narrow the gap with Amazon.

“Given that Walmart also has a close relationship with JD, I see [the investment] as further tightening of the Google/Walmart alliance, which seems focused on building a third force in e-commerce beyond Amazon and Alibaba," said Atlantic Equities analyst James Cordwell.

For JD.com, the Google deal shows its determination to build a set of global alliances as it seeks to counter Alibaba, which has been more focused on forging domestic retail tie-ups. Japan's SoftBank Group Corp., which is making big internet investments around the globe, is a major investor in Alibaba.

Meanwhile, JD.com reported a record-breaking transaction volume of 127.5 billion yuan (US$20 billion) for the 618 Mid-Year Shopping Festival that took place on June 18. The sales took place from June 1 at 12 midnight to June 18 at 12:10 a.m.

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EJ Insight writer