JD’s Ecology Occupies a Greater Space, Stands Up to Alibaba
Along with the 2020 Q1 financial report of JD.com, comes the announcement of financing news – JD MRO (maintenance, repair and operations) received USD 230 million in the Series A funding, a further move to help it become more resilient.
► JD MRO has become the fourth unicorn, at a value of over USD 2 billion, incubated by this e-commerce giant.
► It is building an ecology covering digits, logistics, health and MRO (maintenance, repair and operation) with a heavy anchor on its 3C-based e-commerce.
Its first quarterly financial report announced that JD.com had entered a definitive agreement for the non-redeemable Series A investment deal in its industrial goods market, following eye-catching billion-level financial figures and a great leap forward in operation data, such as 387.4 million active users in the twelve months ending March 31 2020.
JD MRO, as part of JD Retail, received a capital injection of USD 230 million from GGV Capital, Sequoia Capital China and CPE, among others. This deal size represents 10.7% of the equity interest of JD MRO on a fully diluted basis, which indicates a post-deal estimated market value of over USD 2 billion for this young startup.
The sky-high figure broke the financing record for the Chinese MRO market, showing an enormous MRO market size and a positive outlook.
What is fancy about the industrial goods market?
The Chinese industrial goods market has not seen heated investments. However, it is indeed a blue sea in the vast construction market and for thousands of big infrastructure projects across this country.
In 2018, the Chinese MRO market expanded to a size of CNY 1.2 trillion, following a 9% CAGR over the past ten years, and is projected to grow at a CAGR of 5% in the next decade. Meanwhile, the MRO continues to be more digitized, smarter, and platformed, which adds more potential for further explosive growth.
The market drivers are from several sides, covering substantial business opportunities, investors’ insights and government policies. The Chinese government’s 2020 New Infrastructure project is another booster for all the relevant players in manufacturing, industrial goods, infrastructure construction, etc.
JD MRO, founded in 2017, was an attempt for JD.com to explore more possibilities beyond consumer goods in the retail market. As a subsidiary of this giant e-commerce name, the JD-brand unicorn operates an independent e-commerce platform that specializes in industrial MRO products and services, an intelligent purchasing platform and supply chain solutions for corporate customers.
A JD-brand Ecology
And this is just a piece of JD’s jigsaw puzzle.
Starting from 3C-centered e-commerce in 2004 – the same year Alibaba began the first step on its path to becoming an e-commerce titan, JD.com chose the 3C and home appliances goods market. Selling refrigerators, televisions and expensive smartphones such as high-tech devices online at that time – this move refreshed consumers’ minds and fast earned an ‘authentic quality’ brand profile. Very soon, the following two years saw its explosive growth.
Backed up by this high-valued goods e-commerce, JD.com has always been seeking a new niche segment to penetrate. Before this industrial MRO, this group successfully incubated three unicorn startups with sophisticated interconnections.
JD Digits, formerly known as JD Finance, is a fintech platform providing financial services and products to its consumers, startups, online vendors and SMEs (small- and medium-enterprises).
JD Logistics is its supply chain and distribution network. Although this unit just made its ends meet, it has shown astonishing delivery performance to serve consumers quarantined due to COVID-19.
JD Health is another rising business in the public’s sight. At the peak time of the pandemic, JD’s healthcare app quickly reacted by providing online sales of medicines, online medical and psychological consultations, etc.
Indeed, consumer goods is a big topic, covering nearly everything. Sticking to one particular business is risky in this fast-changing world, mixed with economic turbulence, public healthcare crises and political disputes. This is a relative advantage for platforms, or media roles, that create value and make a living out of bridging businesses and consumers.
However, when these e-platforms are determined to enter a particular area, it always serves as a whole, from very fundamental technologies to virtual user experiences.
And these e-giants are now building their kingdoms. The more diverse the areas they touch upon, the wider their business moat gets. In this ecology, JD.com is still anchored on its e-commerce or retail business. Its Digits unit helps consumers and vendors relieve financial pressure. The logistics services are also flexibly oriented towards the consumer fresh goods market through a ‘Mobile Fresh Basket’ for community shopping.
JD Health was introduced last but caught up at the right time – unfortunately, this was COVID-19 – to accumulate its first traffic pool. After harvesting a lot of online users, it is deploying further resources, with an ambitious aim of targeting the chronic diseases market by launching a medical information sharing platform in a partnership with several local prestigious medical institutions.
So this is the trick that JD.com and other similar platform-based giants are playing. Even though it seems that JD.com has extended diversely from the west to the east, all business units are designed with a shared logic. First, starting from fundamental technology in different areas, build up by attracting more online traffic, then anchor back to the base of consumption through web-like interconnections.
A Threat to Alibaba’s Empire?
From a holistic perspective, not yet – since the two giants are deploying in very different business areas.
In the arena of e-commerce, for JD.com, it is never too late to unleash war against the other titans, with the biggest gross merchandise value (GMV) reaching CNY 5.7 trillion in 2019, and considering JD’s GMV made a CNY 2 trillion breakthrough in the same year.
However, it is worth it to recall that ‘the enemy of my enemy is my friend.’
Pinduoduo (PDD:NASDAQ), the five-year-old e-commerce, has become the most threatening game-disruptor since 2016. By leveraging group-buying and social networks, it grew at unprecedented speed to reach a GMV of CNY 1 trillion last year.
Now the top three Chinese e-commerce companies have been heating up the whole consumer goods market, especially right now. Aiming at the 3C product market, Pinduoduo bought GOME Retail’s (0493:HKSE) USD 200 million convertibles in April, a milestone indicating their strategic cooperation. Quickly responding to this, the other two players’ selected online shopping platforms – Tmall (Alibaba's selected e-commerce channel) and Suning – announced they would initiate a “CNY 20 billion subsidy” on April 29.
Also, in the livestreaming battlefield, JD.com is a late entrant but has pushed all its efforts to win back traffic and users. A crueller struggle has arisen as more tech companies – Baidu, and content platforms such as Kuaishou and Douyin – have stepped in to engage in this game.
There is undoubtedly a long-term war in the consumer market. But for the industrial MRO market, JD.com has taken an early step up and is appreciated as a leading name by the market.
- A Glance at JD Digits' IPO Prospectus: Steady Growth in Profitability
- JD.com: 'One-Trick Pony' Gains a Set of Tricks – Initiate with Hold [2/2]
- JD.com: 'One-Trick Pony' Gains a Set of Tricks – Initiate with Hold [1/2]
- Reforming the Financial Industry: China’s Top 10 Fintech Companies
- JDD Receives HK Virtual Bank Permits: New Opportunities