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On June 18, JD.com concluded its annual shopping festival with a transaction volume of around US$24.5 billion. On the same day, the e-commerce platform also announced an investment from Google of $550 million. What does this new alliance mean? Listen to latest episode from TechBuzz China to find out!
TechBuzz China by Pandaily is a weekly technology podcast focused on giving you a peek into what’s buzzing within the tech community in China. It is co-hosted by Ying-Ying Lu and Rui Ma, who are both seasoned China watchers with years of experience working in the technology space in China. They uncover and contextualize unique insights, perspectives, and takeaways on headline tech news that don’t always make it into English language coverage.
This week on TechBuzz China, Ying-Ying and Rui gives a thorough breakdown of China’s second largest e-commerce platform, from its history and recent ventures abroad, to the couple behind the behemoth with celebrity statuses akin to Amal and George Clooney.
As always, you can find these stories and more at pandaily.com. Let us know what you think of the show by leaving us an iTunes review, and don’t forget to follow us on Twitter at @techbuzzchina and to like our Facebook page!
We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of http://pandaily.com/, a new English language site that tells you “everything about China’s innovation.”
(R: Rui Ma; Y: Ying-Ying Lu)
[0:00] R: On June 18, JD announced an investment of $550 million from Google. It was a historic deal on many levels. Not just because the two companies involved are gargantuan — JD is almost $60 billion in market cap — but because there just really hasn’t been many strategic tieups of this scale between US and Chinese internet companies, not like ever.
Y: And the timing is especially interesting given all the talk of a U.S.-China trade war and all that.
It made for a good headline, didn’t it? Top US internet company and top China ecommerce company entering into a big deal. But the real deal isn’t about the US, or China.
R: Nope, it’s really about the race to win the rest of the world.
We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network.
We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of Pandaily.com, a new English language site that tells you “everything about China’s innovation.”
[1:41] Y: This week, we are going to play a little game. We’re going to give you a small trivia question the answer to which is we share within this podcast. If you tweet at us with the correct answer, so please tweet @techbuzzchina, we’ll enter you into a raffle to win some special Techbuzz swag!
R: The question is, during this year’s 618 Festival that just ended on June 18th, how much in goods were sold on JD.com
Y: And if you enjoy listening to us, please take the time to leave us a rating or review on iTunes and elsewhere!
[2:27] Y: On March 20, 2018, Amazon exceeded Google to become the second largest company in the world at a market cap of $763 billion. Granted, ten days later Microsoft achieved the same feat, but today’s episode is all about e-commerce.
R: Google and Amazon obviously compete on many things, including cloud services and video streaming, but Google’s the most nervous about e-commerce.
[2:57] Y: While Amazon is estimated to account for 44% of US ecommerce, it does not have such a commanding lead globally. China, as we all know, is dominated by Alibaba, who has over 55% market share according to iResearch.
R: That leaves the rest of the world still up for grabs, to a degree anyway.
Y: Google could have worked with Alibaba
R: At least that’s our theory. But was this a good deal? What were some of the dynamics behind this deal? Let us break it down for you.
[3:42] Y: First, we are going to introduce you to JD, which is short for Jingdong, a combination of the founder’s own name Liu Qiangdong 刘强东, and his ex-lover’s name. To make it simpler, we’ll refer to Liu by his English name, Richard, from now on. Basically, Richard came from an extremely poor family, and indeed in Chinese media he still plays up his humble village beginnings. This explains why when he got admitted into Beijing’s Renmin University, a top 10 university in China, he focused on escaping poverty and began experimenting with starting his own business while still in school.
[4:16] R: Richard was always quite the entrepreneur. In 1998, after failing a restaurant venture, he rented a counter in today’s Zhongguancun district in Beijing selling CDROMs and CD burners.
Y: So old school.
R: Things were going well though and by 2001 he was actually the biggest seller of CDROMs in all of China. But then SARS hit in 2003, and no one wanted to leave the house so sales suffered. When Richard learned that you can sell things over the internet though, he immediately tried it out. By the end of 2004, he was confident enough in selling online that he closed all his offline stores and went all in on ecommerce. The company, JD, eventually went went public in March 2014, actually a few months before rival Alibaba
[5:11] Y: Between Alibaba
[5:57] R: Yeah. There’s Tencent
Y: Secondly, Richard Liu specifically mentioned that this deal was really to showcase JD’s efforts to internationalize.
[6:19] R: In 2015, JD already tried to conquer Indonesia, then Russia. In Indonesia, it met with fierce resistance from Alibaba
Y: So, to some Alibaba
[6:51] R: Thwarted, JD went into Thailand and India. But both have been very tough markets to crack. So not only is Alibaba
Y: But while JD may not have been doing as much ecommerce sales as it wanted, it has been quietly beefing up its overseas logistics. It’s built over 110 warehouses on five different continents, including in such major global hubs as Hong Kong, Tokyo, Los Angeles and Amsterdam.
[7:23] R: This has always been an area of strength for JD. In fact, it’s one of the main reasons I never liked Taobao or Tmall, and preferred to stick with JD instead. For pretty much anything non-apparel related, I prefer JD because, JD centralize logistics instead of Taobao, where the delivery was handled by a third party. So while JD’s delivery was very reliable, Alibaba
[8:10] Y: Seems like JD has improved a lot since even then though. During last year’s Single’s Day, JD’s packages arrived within 2 hours after consumers placed orders in 312 cities, within 1 hour in 60 cities, and within half an hour in 18 cities. That’s faster than most of my Ubereats.
[8:30] R: Mine too. What’s more impressive though is that this year, JD said that over 90% of the orders placed during its Shopping Festival, the one from June 1 to 18 which just ended a couple weeks ago, were delivered same-day or next-day. That’s over 90%! They also pulled a little PR stunt by showing off their newest delivery robots in Beijing. Those robots currently can make 80-100 deliveries a day each. That’s lower than the 100-200 per day humans can accomplish, but soon of course, it’s expected that the robots will be able to exceed that. JD is already deploying technology that Google and Amazon have only shown in ads.
[9:09] Y: How can JD get such amazing delivery times? The answer is that it’s been digitizing its inventory, tracking consumer behavior, and investing in automation for a long time now. It’s also been hugely successful at predicting inventory needs. Where Amazon’s inventory turnover is an average of 44 days, JD’s is only 20.
[9:33] R: While Alibaba
[10:02] Y: According to a leading e-commerce analyst in China, there are really 3 major ways for Chinese ecommere platforms to expand overseas. One is to do what AliExpress did and go about it yourself. Another is to invest significant stakes in foreign players and outright acquire them, as in the case of Alibaba
[10:31] R: In his opinion, the last is the most capital efficient, quickest to see results, and thus lowest risk. Especially for Google, who’s relatively less strong in e-commerce, JD seems to have found a perfect complementary partner.
Y: It could also be a lesson that they’ve learned from Alibaba
[11:00] R: In comparison, JD’s partnerships so far with Toutiao and Sina have been much looser and thus less effective.
It’s showing up in the numbers. JD’s last twelve month MAU as of Q1 2018 is just over 300 million, an increase of 3%. Ali, in comparison, reported a 7% growth.
Y: And there is also the interesting question of where does JD really stand in Camp Tencent
[11:38] R: That’s because they each suck at one crucial thing – Alibaba
Y: Anyway, that’s why Tencent
[12:05] R: So far JD and Tecnent has looked like a relatively happy alliance. They have jointly invested in quite a few other ecommerce players, including $863 million into apparel e-tailer VIPShop last year. They’ve also further expanding this marketing analytics partnership they created to help retailers better target consumers. By all accounts, it looks as if Tencent
[12:33] Y: And there is always a but, right? But the JD and Tencent
[13:10] R: The kicker here is that Pinduoduo
Y: So there are some who think that JD may be losing favor with Tencent
[13:45] R: For example, take the recent JD Shopping Festival, the 618 festival that just concluded on June 18th. It’s the founding date of JD, and their biggest sales event of the year. Of course, it’s also the day on which they chose to make the Google announcement. By the way, I really think that JD was clever to brand June 18th their own Shopping Festival because unlike Alibaba
[14:26] Y: Last year Alibaba
[14:53] R: In any case, this year’s JD Shopping Festival, which actually lasts from June 1 to 18, netted revenues of $159 billion RMB or just about $24.5 billion USD for JD, that’s an increase of 37% from last year. I thought that’s pretty impressive.
Y: JD is definitely not without its weaknesses, but it’s not getting crushed by Alibaba
R: Even if JD doesn’t internationalize successfully, Richard Liu is one of the most envied men in China. Not just because he’s been so successful as an entrepreneur, but because of his second wife.
[15:42] Y: His second wife Nancy, Zhang Zetian (章泽天), is better known as 奶茶妹妹, or Sister Milk Tea. She became famous for her beauty when as a 16 year old, a photo of her holding a cup of milk tea went viral on the Chinese web.
R: Her fame was so out of control that when I was visiting the Microsoft accelerator in Zhongguancun a few years ago, she had been admitted into Tsinghua University as an undergrad and was interning there, the accelerator staff told me that getting a glimpse of her, getting a glimpse of Sister Milk Tea, was one of their primary selling points to startups.
[16:22] Y: Later on, when she was studying abroad in New York, Richard Liu happened to in town for an executive program and they fell in love. It was the biggest deal. First because they had like a two decade gap. Second because well, while Richard isn’t ugly, he isn’t exactly Prince Charming. Many predicted that the marriage is a sham and Sister Milk Tea is only out for money.
[16:46] R: But here we are, three years into their marriage and 1 kid later, and they are consistently in the headlines for being the most loving couple in Chinese tech circles. Milk Tea has also become a powerful business woman in her own right. She invests actively and she’s known as a big philanthropist. This is a really popular couple guys! They have so many memes about them. With their age gap and the celebrity status they have, they’re like a Chinese version of Amal and George Clooney.
[17:11] Y: Why is this important to JD? Well, first of all, it amounts to a ton of free advertising. Secondly, Milk Tea, because of her beauty, has become a sort of fashion icon. She’s become a regular VIP at all sorts of highbrow fashion events. Remember now, what we said earlier about JD being known for consumer electronics and Alibaba
[17:56] R: For me, I really hope the JD-Google alliance works out because it makes for such a great story of U.S.-China collaboration. Walmart is already in there but it’s not a tech company.
Y: Me too. Here’s to seeing more of such deals in the future.
[18:17] R: We’d like to give a shoutout to our partners at SupChina. In addition to our podcast here with Pandaily, they publish the excellent Sinica podcast, a weekly discussion of current affairs on China with journalists, writers, academics, policy makers, and business people.
Y: So while we only focus on tech, they really give you the entire overview.