Google – Shopaholic

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JD.com will help Google shopping a bit.

• Sinking $550m into JD.com is unlikely to do anything for Google’s fortunes (or lack thereof) in China, but it may help somewhat with the biggest weakness of the Google Assistant in developed markets: shopping.
• It is also a recognition that if one wants to find innovation in e-commerce and digital retail, one has to look for it in China (see here).
• Following a strong following at CES which was followed up by wide spread developer support for the assistant, Google has effectively put to bed the problem of smart home products not working with its assistant.
• This combined with the fact that Google Assistant generates far more data than Amazon Alexa (see here), led to a change in RFM’s position.
• RFM now thinks that, Google is in pole position to take the smart home leaving Amazon Alexa as an assistant for shopping and not much else.
• However, not content to rest on its laurels, Google is also looking to address this shortcoming which I think has led to the deal with JD.com.
• I suspect that it went to Alibaba first but was rebuffed as Alibaba has its own plans for business outside of China.
• The result is that Google is investing $550m in JD.com (a tiny minority stake of around 0.8% using the prevailing share price) leading to JD.com joining the Google Shopping program.
• This will mean that Google gets access to JD.com’s inventory of products as well as the shipping and logistics that JD.com has in place to execute its transactions.
• com also has ambitions outside of China and indirectly, this may result in some sort of alliance between Tencent (15% owner of JD.com) and Google in the future.
• I think that this does nothing to help Google push its services into China as it remains blocked by the Golden Shield Project (aka Great Firewall of China) and this alliance will do nothing to change that state of affairs.
• Furthermore, China is now fully developed in terms of Digital Life services meaning that it would face an uphill battle in terms of getting users to switch to Google services.
• Hence, I think this is all about trying to make the Google Shopping experience better as Google may well get access to some of JD.com’s innovations which it may be able to offer to other merchants on its platform in developed markets.
• Even with the power of JD.com behind it, Google is unlikely to make a real dent in Amazon’s ecommerce empire but critically I still think that this is not required for Google to win the battle overall.
• Google has put most of the smart home issues behind it which combined with the fact that it remains a substantially better product, should allow Google to end up dominating this space.
• However, the fact that Amazon has made the Dash Wand product available for free means that Prime households can use both assistants at no extra cost.
• Hence, I see a scenario where Prime users use Amazon Alexa for shopping and Google Assistant for everything else.
• From an investment perspective I would prefer Alphabet over Amazon on valuation grounds and Google over all of the other advertising driven ecosystems outside of China while the data privacy story plays itself out.
• Privacy advocate Apple is likely to outperform all of them while the news and thematic cycle focuses on data usage and security.