JD.com, a major Chinese e-commerce company, is looking to become the technology platform of choice for U.S. customers in a cloud computing market dominated by Alibaba.
JD is best known in China for its claim to one-day or next-day delivery service, which helped drive a year-on-year increase of 18.6% to 362 million annual active customer accounts in 2019. Bernstein analysts also upgraded the stock to “outperform” on March 17, noting how JD’s in-house logistics network kept operating throughout the Lunar New Year and the coronavirus’ hit to the economy.
The Beijing-based company is now trying to build on that delivery and retail network with a new line of business in technology services, which covers logistics, advertising and cloud computing.
“From last year, our new clear direction at JD was to serve the company based on the foundation of supply chain (development),” Bowen Zhou, chair of JD’s technology committee and president of JD Cloud & AI, said in an interview with CNBC on March 20. That’s according to a CNBC translation of his Mandarin-language remarks.
“When we look at the direction of our future operations, technology and services is a core engine of growth,” Zhou said.
Development of those products and services will also help JD achieve its international goals.
Zhou said JD aims to work with Fortune 500 companies that want to grow their operations in China, as well as help U.S. and European technology companies’ products enter China.
Competition in cloud
At least in cloud computing, it’s a tough road ahead as JD isn’t even close to having the same market share as Alibaba, Tencent and Baidu have, according to Canalys analysis published March 18. China is the world’s second-largest market for cloud infrastructure services, of which Alibaba Cloud accounts for 46.4% of total spend, followed by Tencent Cloud at 18% and Baidu AI Cloud at 8.8%, as of the fourth quarter, the analysis showed.
For all of last year, cloud infrastructure services spend in China increased 63.7% to top $10.7 billion, according to Canalys.
But JD is seeing growth. Net revenues from services surged 43.6% in the fourth quarter to 20.97 billion yuan ($3 billion), faster than the 24.5% growth in the albeit far greater sum of 149.7 billion yuan in net product revenues.
Zhou stressed that for JD, technology services sold to clients are based on applications for the company’s own operations, and cover artificial intelligence, big data, cloud, devices and “exploration” of new applications.
JD Cloud and AI officially became one of the company’s major business lines on March 5, joining JD Retail, JD Logistics and JD Digits, highlighting the emphasis this company is putting on the segment.
JD Logistics broke even last year on an operating income basis, while JD Digits is a research and fintech arm that was spun-off in 2017.
Some businesses are already betting on JD’s mix of technology, retail and supply chain systems.
JD.com is backed by technology giant Tencent, and the online retailer received a $550 million investment from Google in 2018. JD also has a strategic alliance with Walmart, which invested $500 million together with JD in the Chinese company’s affiliate Dada, which runs an online fresh produce delivery platform.
For Alibaba, Tencent and Baidu, their stakeholders are primarily investment firms, according to public records.
While the coronavirus’ spread has helped JD stand out, the company is not immune.
The virus’ emphasis on limited human contact has affected much of the work involving business-level clients since it typically requires in-person presentations, Zhou said. He noted that the company was supposed to deliver many products and services to clients in the first quarter, but much of that has been delayed, save for a smart temperature sensor.
But he’s confident the company’s track record in retail will draw more customers in the long-run, especially given the pressure the virus has put on accelerating the digitization of many business operations. CNBC