Why Google is Investing $550M in JD, Chinese e-commerce Powerhouse

Google is investing $550 million in JD, a Chinese e-commerce powerhouse. With this investment, Google will reach new Asian markets where JD does business. But this investment goes beyond expanding territories to actually striving for re-positioning within the evolving dynamics of new retail. It is already evident that Amazon and Alibaba are now “search” companies where customers go straight and search for items they want to buy without going through Google first. Simply, they have disintermediated Google for shopping search, and if Google does not recognize that, it would be making a big mistake.

Google will invest $550 million in Chinese e-commerce powerhouse JD.com, part of the U.S. internet giant’s efforts to expand its presence in fast-growing Asian markets and battle rivals including Amazon.com.

The two companies described the investment as one piece of a broader partnership that will include the promotion of JD.com products on Google’s shopping service. This could help JD.com expand beyond its base in China and Southeast Asia and establish a meaningful presence in U.S. and European markets.

Yet, Google, to remain appealing to users continues to take its search users to Amazon.com, at least when they search on Google.com, as Amazon remains one of the best destinations where people can buy things online.  If Google does not do that, it means it is sacrificing its product quality over unnecessary competitive warfare, in as much as Amazon remains the best ecommerce portal in America. So, Google does deliver traffic to Amazon but Amazon customers searching right at Amazon.com have nothing to do with Google. As Amazon expands into more territories and businesses, that is expected to deepen and broaden with Google losing more “shopping search”. Without a solid ecommerce business, Google may be losing market share. (In the past, Amazon used to buy traffic from Google; my understanding is that has ended or massively curtailed.)

Furthermore, Amazon now generates a huge revenue through advertisement, at more than $2 billion per quarter. In other words, if merchants know that Amazon has the customers, typical with portals and their network effects, they are better off advertising in Amazon over Google. Google takes them to their websites when they advertise on Google. Those businesses could be small with trust factors that conversion rate may be low. But when they spend advert money on Amazon, Amazon takes them to their storefronts where active buying customers can easily purchase items with the security and trust of Amazon irrespective of their business sizes.

I was on Amazon today working on gifting items when I noticed something: Amazon now runs a serious advertising business. And there are many companies putting money in that ecosystem. If companies think that advertising on Amazon is a better deal than promoting their websites on Google, it simply means that Google has a major problem in its hands.

Facebook has walled off the partying and events communities, and if Amazon takes care of the merchandise, I do not know what will remain for Google. Yes, we put adverts for two major things: events and products. If Google becomes a second-platform for both, there is a problem for Larry Page and his lieutenants in Alphabet, the parent to Google.

For small businesses, Amazon advertisement is a better deal than spending money on Google. When you shop on Amazon, the trust factor is high despite possibly buying from a 3rd-party brand [Amazon has many protections for buyers]. Yes, Amazon takes you to a place where you spend money peacefully. Google takes you to a website where you need to do another level of risk processing before you spend money. That is why Amazon advertisement is appealing to merchants, and Google is worried.

For most merchants, Google gives page views, Amazon sends money to bank accounts. The future of the web would be fought on purses and ecommerce would be at the heart. Google through JD wants to get into that game because Amazon and Alibaba are circling.

All Together

This JD partnership will help Google to increase its share of the ecommerce domain. As noted in the partnership announcement, if JD expands in U.S. and European markets, Google would benefit. Anything JD could give Google to reduce the clear dominance of Amazon on shopping (and associated shopping search) would be a boost in U.S. and Europe. The Google shopping service is many years behind Amazon; JD could help it improve on that product and relevance in North America. And doing that could help Google to sell its physical products like Home, Pixel etc which need a solid ecommerce platform.

Leaving the market to Amazon uncontested means Google cannot be sure how some of those physical items would be sold especially now that more device sales are moving online as malls collapse across America [Google may like to reduce its presence on Amazon portal]. There is a clear convergence on ecommerce, and Google wants to be part of the game. Investing in JD would help it to fight the presence battle with Alibaba and Amazon. But it would be a long one as Amazon and Alibaba are category-kings already.

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