China JD.com has recently made clear that he engages in artificial intelligence and automation. Every few months in the last year, the online retailer – the second largest in China after Alibaba deals – unveiled new products based on state-of-the-art technologies: for example, drones, trucks, fully automated warehouses.
Most of these technologies are still in their testing phase, and JD technology investments, which are further expanding, are already consuming profits.
In the second quarter, spending on titanium retail has increased by more than 70 percent since last year, for the third consecutive quarter, costing the company 2.8 billion yuan or 400 million dollars. Net revenue slipped more than 50% to 478 million yuan, compared with 977 million yuan last year.
By comparison, marketing and fulfillment, which traditionally accounts for the bulk of JD's overall operating expenses, increased by less than 30% over the same period.
When will JD start taking advantage of its technologies seriously? When he can do things on a scale, according to the head of the company's technology.
"If there is no scale, there are savings," said Zhang Chen, a technology chief of JD, to a group of reporters in Beijing on Tuesday.
"If you build something, you want other people to use this. It takes a long time to make a perfect product before saying it was done." It's about the iteration and the data you get, "Zhang continued .
Starting in August, JD had over 314 million annual user accounts. It's a big piece of Chinese 800 million Internet users (even if people can have multiple accounts). Alibaba's archiving, however, reached twice the size of JD at 601 million active clients annually in September.
Alibaba also enjoys far greater profit margins than JD, due to an approach based on a lightweight platform linking consumer vendors and getting the most of advertising revenue. JD, on the other hand, runs a more expensive model that sees that it operates most of the supply chain and delivers goods to customers – such as Amazon .
The operating margin of Alibaba in the third quarter was of 16 percent, while JD has posted a 0.8 percent non-GAAP operational margin in Q2. That being said, Alibaba also suffered a margin squeeze in recent quarters as it continues to invest heavily in offline operations such as food delivery.
In order to ensure greater traffic, JD relies on its ties with Tencent, a major shareholder in its business and the builder behind the popular WeChat messenger. While Alibaba e-store linkages are locked on WeChat, JD runs smoothly through a "mini program", a lightweight application that runs inside WeChat's interface, allowing buyers to bypass app stores.
It is unclear how much traffic Weck brings to JD. But WeChat has proven to be an effective channel for purchasing ecommerce users. This is obvious in the case of the group purchase application Pinduoduo, which started as a WeChat mini program. In June, the three-year company JD dropped in mobile penetration to reach 26.2%, according to Jiguang data service provider.
Pinduoduo's growth was so impressive for his actions increased by 40% on the first trading day on NASDAQ in July, even if later nosedived following allegations of fake goods sold on the e-commerce platform.
Counterfeiting is a ten-year-old problem in the Chinese Internet that distorts both the name of Alibaba's online Taobao base and even JD, which boasts the authenticity of direct sales.
JD has also been looking overseas for growth. In August, Google has poured 550 million dollars into the JD as part of a strategic partnership to help the Chinese company reach more users around the world. While vice president of the Ling Chenkai strategy, JD, did not disclose details of European company plans when asked TechCrunch on Tuesday, he assured that global access has always been a "aspiration" for JD, and the partnership will play a key role in the process.
But JD understands that he can not always return to his partnerships, even with his close allies.
"Every company protects their data as it is [there will be] neither tomorrow nor even with strategic partners. Data exchange is a very serious business, "says Zhang CTO.
"Most Chinese companies have a very high security team," he noted, adding that while partners do not share data directly, they collaborate through sharing user information.