Google is set to invest $550 Million into Chinese eCommerce giant JD.com, as reported by Reuters last week. The investment is part of Google’s effort to expand their presence in the fast-growing Asian market and to battle rivals like Amazon.
The two companies described the deal as a broader partnership that will include the promotion of JD.com products on Google’s shopping service. For its part, JD.com said it planned to make a selection of items available for sale in places like the U.S. and Europe through Google Shopping. The move could assist JD.com to move beyond its China and Southeast Asia base and perhaps give a meaningful presence in the U.S. and European markets.
However, the partnership does not include any new initiatives in China, where Google’s main services are blocked over its refusal to censor search results in line with local laws
JD.com’s investors include Chinese social media powerhouse Tencent Holdings Ltd, the arch-rival of Chinese e-commerce leader Alibaba Group Holding Ltd, and Walmart Inc.
“Given 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 ecommerce beyond Amazon and Alibaba,” said Atlantic Equities analyst James Cordwell.
Google is beginning to make larger investments across the fast-growing Asian market. The last few years have seen a rapid rise in the middle class, as well as the explosion of eCommerce with giants like Alibaba dominating the playing field.
Recent Google investments include Indonesian ride-hailing firm Go-Jek, and sources have told Reuters that it may also invest in Indian e-commerce upstart Flipkart.
As part of the deal, Google will get 27.1 million newly issued JD.com Class A ordinary shares, which will give them a less than 1 percent ownership of JD.com.
Company officials said the deal would marry Google’s market reach and strength in analytics with JD.com’s expertise in logistics and inventory management.
The investment may give Google access to more consumer data, which can be used to boost usage of Google Shopping, said Morningstar analyst Ali Mogharabi.
(An abridged transcript from our conversation.)
John Suder: I think there’s a lot at play here.
Bart Mroz: I Just think it is like Google is looking at it as like, “Hey, let’s become another big player and copy everybody”.
John: That’s kInda what I was going to say. They haven’t shunned ecommerce or ignored it. They’ve had Google Shopping for a while. It’s like this thing that it’s there, but no one really talks about.
Bart: When is the last time you bought anything from Google Shopping?
John: I actually used it yesterday because I was working on this story and I tried it out. It’s a nice aggregator, but it’s nothing pretty to look at. It’s very utilitarian and it does what it needs to do. If you want to save a little time you can use it and it’s a nice filtering, but I think what this [deal] is doing is it’s showing that Google wants to have a broader impact and reach than just a search page for ecommerce.
Bart: Yeah, they do. I think they do. It’s just like Alibaba is so big. I mean, I guess this is just a big entrance into the Chinese market or Asian market to play against everybody else.
John: I’ve read that the whole foods acquisition by Amazon was a wake-up call to everybody in ecommerce including Google because now all of a sudden it’s like Amazon is taking over these giant spaces and Google’s kind of sitting on the sidelines. They’re also worried about how big Amazon is getting in terms of Amazon moving in on advertising, a lot of the retailers that we’re on google are suddenly going to just go with Amazon.
Bart: Amazon is already in advertising. You can advertise inside of Amazon already. So it will push through that.
John: Yeah, they’re fearing that it’s going to get bigger. And what, what’s their biggest moneymaker? It’s the advertising, that’s all they make their money on. So the other scenario is that because you can’t access google in China because of their strict laws, and Google won’t back down, but the feeling is that they, they slide in there and try to play nice with China and hope some of that restriction will be lifted. And it’s also an analytics play because JD has this incredible infrastructure – they have a warehouse that can fulfill 200,000 orders in one day from one facility with four human workers.
Bart: Amazon and Google going try to battle out all the time and they’re both playing the cloud game that both playing the ecommerce game, they’re going to just keep slugging it out each other.
John: For retailers, partnering with Google on shopping offers visibility and consumer convenience. For Google, it’s shopping services is pretty much critical in having them win back the product searches from Amazon and helping them stay relevant, the voice devices and the voice space, which we’ve talked a lot about. So, this is going to be really interesting. It’s a big move. $550 million dollars seems like a ton of money, but not when you’re playing at this scale for them they didn’t even, they know $550,000,000. Got them less than one percent of the share of JD. It’s a foot in the door and we’ll see if that door opens up and we’ll see what happens with Google.