On June 18, Google and JD.com announced that Google is investing $550 million in JD.com as part of a strategic partnership. Google thus joins many other businesses attempting to crack the vast China market by forming a partnership with one of China’s major retail players. JD.com, though, is more than a popular online retail marketplace. It’s also 20-percent owned by Tencent, making Google an indirect participant in one of China’s major business ecosystems flourishing under the so-called BAT companies, Baidu, Alibaba, and Tencent.
For Google, moving closer to BAT is probably the only way the company will ever get a foothold in China. Google’s search, Gmail, YouTube, and maps products are banned in China. I’ve heard the relationship described as Google locking arms with “the Amazon of China.” The description is convenient but overlooks a few realities:
1 There is no “Amazon of China.” True, JD.com is a principal marketplace, but it competes with formidable marketplaces such as Taobao and Tmall, both of which are owned by rival Alibaba. These marketplaces operate in radically different fashion than Amazon does, offering immersive experiences such as virtual reality and celebrity appearances online.
2 A relationship with JD.com goes beyond China. As JD.com said in a press release:
Google and JD plan to collaborate on a range of strategic initiatives, including joint development of retail solutions in a range of regions around the world, including Southeast Asia, the U.S. and Europe. By applying JD’s supply chain and logistics expertise and Google’s technology strengths, the two companies aim to explore the creation of next generation retail infrastructure solutions, with the goal of offering helpful, personalized and frictionless shopping experiences. JD also plans to make a selection of high-quality products available for sale through Google Shopping in multiple regions.
As we’ve noted on our blog, the China-based superpowers are international players in their own right. For instance, Alibaba is one of the Top 6 worldwide internet leaders in terms of market capitalization, behind only Apple, Amazon, Microsoft, Facebook, and Alphabet, and Alibaba is getting a larger share of its revenue from outside China. For its part, Tencent is also expanding globally, focusing first on Southeast Asia, which is where a relationship with Google comes into play.
It will be interesting to see whether the growth of JD.com, Taobao, and Tmall influences how marketplaces operate in other countries. Will they also adopt some of the attributes that have made the Chinese marketplaces successful, such as the use of immersive experiences that increase engagement?
In addition, how successful will Google become in penetrating China through companies such as JD.com? As we’ve discussed, China retailers operate vast, complex ecosystems with their own retail infrastructures and self-contained forms of payment. If Google and JD.com deepen their relationship, Google may find itself at odds not only with Alibaba but also Alipay, Alibaba’s payment software that underpins transactions on Tmall.
You might be examining how to build your presence in China as well. We recommend you apply the BAT Framework, which views the BAT ecosystems through the lens of your people, processes, and platforms. By taking a thoughtful approach and understanding the impact of BAT domestically and globally, you will increase your chances of succeeding through the kinds of partnerships we’re seeing with businesses such as Google and JD.com.
Contact Moonshot for more insight into succeeding in China.