Richard Brosgill
Jun 25, 2018

JD & Google: the enemy of my enemy is my friend

Google's US$550 million investment in JD.com could signify a huge shift in what consumers have come to know about what 'search' or 'ecommerce' is, discusses Forward3D's Brosgill.

Announcement of Google's investment by JD's Richard Liu
Announcement of Google's investment by JD's Richard Liu

The goliaths of digital are building deeper and deeper moats, but as they do, the competition for consumer attention grows.

Last week, Google announced plans to invest US$550 million into JD.com. Although this is a drop in the ocean for Google, the move appears to be a tactical play to combat the growing competition from internet retailers, such as Amazon and Alibaba, that are increasingly threatening Google’s core search business. More consumers are turning directly to these ecommerce-led platforms to hunt for products, and the menace is now extending to informational searches with voice assistants.

Google has seen the writing on the wall for some time and has built solutions to counter this in an attempt to retain search volume. Google Shopping was invented in 2002 to give consumers direct access to products. Google Express is the US market's evolution of this idea which enables consumers to purchase directly through the Google Home speaker from brands including Walmart, Target and Costco, without having to leave Google's ecosystem. A clear play to push back against Amazon.

This begs the question, how does Google benefit from an alignment with China’s second-largest ecommerce company?

Google’s search arm is unlikely to make adjustments to meet censorship requirements in that market, so the return of its search offering in China is unpromising. Despite censorship challenges, Google remains engaged with China via investments into a local AI research lab and local players including Chushou, a live-streaming app for gaming. Having a strong domestic partner, such as JD.com, may put them in a better position to promote its consumer hardware in China.

As mentioned in their joint announcement, Google and JD.com are looking to develop "superior retail experiences throughout the world". Combining Google’s dataset with JD.com’s logistics would lay the foundation for a credible fight against Amazon and Alibaba's moats. However, with Google only investing in 1% of JD.com, there is a long way to go.

Common enemies in Southeast Asia

It’s likely that this tie-in between Google and JD.com is a regional bet, rather than for China alone.

There is head-to-head competition between Google and Amazon; and between JD.com and Alibaba, all looking to play on the global stage.

While these firms recognise Amazon’s stranglehold on e-commerce across North America and Europe, the rest of the world is unclaimed, with Southeast Asia one of the most attractive regions.

Southeast Asia is full of potential, and a co-authored report by Google and Temasek estimates that e-commerce market size in Philippines, Vietnam, Thailand, Singapore and Indonesia will hit US$88 billion in 2025, from a base of US$5.5 billion in 2015, driven by a large population, a growing middle class and high smartphone penetration. It’s a charming prospect that all the players are aware of.

Now, Amazon recently launched its Prime offering in Singapore in Dec 2017. Meanwhile, JD.com has been funding companies such as Tiki.vn in Vietnam, and localised JD's storefront in Indonesia. Alibaba, ahead of the two, doubled its investment into Lazada in March 2018. The injection of a total of US$4 billion in the leading e-commerce player in the region has effectively given Alibaba a leg up in tackling a very complex landscape.

How about Google? Its alliance with JD.com enhances the depth of produce on Google Shopping, making the search engine a more attractive and effective destination.

To JD.com, this deal enlarges its selling reach and allows more consumers to discover its offerings, not only across Southeast Asia but globally, since JD.com has the infrastructure to deliver worldwide.

In short, Google retains search volume; JD.com boosts exposure for its merchants—a win-win for both companies.


Richard Brosgill is head of APAC & Russia at digital marketing agency Forward3D

 

Source:
Campaign China

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