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PUBLISHED : Thursday, 13 December, 2012, 10:39am
UPDATED : Thursday, 13 December, 2012, 10:40am

Google quits e-commerce, Jingdong eyes cloud

Google is in the midst of a longer-term China withdrawal for traditional Web services, while Jingdong Mall's new cloud initiative will draw more resources from its core business.

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

Several e-commerce items are in the headlines today, including Google's (Nasdaq: GOOG) latest retreat in China as it shutters its Chinese online shopping search service. At the same time, domestic players Jingdong Mall and Suning are continuing their aggressive expansion, with the former pouring big new money into cloud-based services as the latter launches a major initiative based in its new chain of brick-and-mortar superstores. The common theme to all of these news bits is that e-commerce remains an incredibly competitive business in China, and is likely to remain that way for at least the next year or two until cash-rich companies fighting for supremacy in the space finally tire of losing massive amounts of money.

Let's look at the Google news first, since that involves one of the world's biggest tech firms that doesn't easily admit defeat in any of its endeavors. In this case, Google has announced it will formally shutter its China-based e-commerce search service, saying it was failing to gain traction.The move comes just three months after Google announced it was closing its China-based music search service for similar reasons. These moves follow Google's much bigger 2010 decision to shutter its China-based general search business due to disagreement with Beijing over self-censorship rules.

So, what do these latest two closures mean in the big picture? To me these moves appear to be part of a bigger re-evaluation by Google of its China business, which has the company abandoning many of its traditional Web-based services while it focuses instead on developing more mobile-based products centered around its popular Android operating system.

From Google, let's move on to Jingdong Mall, which has just announced it will spend up to 4 billion yuan, or more than US$600 million, to build two cloud computing centres.  This is just the latest initiative outside its core e-commerce business by Jingdong Mall, which also goes by the name of 360Buy. The company has previously announced new forays into the real estate and travel services businesses, and most recently was reportedly setting up a financing unit to help provide money for its suppliers.

Many of these initiatives are related to its core e-commerce business, including these new centres that could eventually provide cloud-based services for Jingdong Mall's customers. But in nearly all of these cases, I would argue that Jingdong should let outside companies provide these related services rather than building them itself. The company is already operating in a highly competitive e-commerce market where it is losing lots of money, and it really doesn't need this kind of new initiative right now that will take away valuable resources from its core business.

Lastly, let's look at Suning, which is trying to make the transition from its roots as an electronics retailer to a general merchandise seller that operates both traditional and Internet stores. In this case, Suning says it will make many of the products from its online stores also available at its new chain of real-world superstores, called Suning Expo.

In my view, this strategy doesn't make much sense, since people who like to buy things online won't want to make a trip to their local Suning store just to order products that they can already buy much more conveniently online from the comfort of their homes. But then again, the e-commerce world is so competitive that Suning and everyone else is looking for any advantage they can find to boost their chances of emerging as one of the final victors in the crowded space.

Bottom line: Google is in the midst of a longer-term China withdrawal for traditional Web services, while Jingdong Mall's new cloud initiative will draw more resources from its core business.
 

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