618, China's mid-year shopping extravaganza, has become more competitive than ever with every player vying for a larger share of a slowly growing market.

According to retail data provider Syntun, this year's gross merchandise value (GMV) during “618” took a hit, dropping 7% to RMB 742.8 billion (US$102.3 billion). It's a significant slump, marking the first sales decline in eight years.

Originally a one-day shopping event started by e-commerce company JD.com on June 18, 618 has evolved into a nearly month-long campaign starting in May, with other heavyweights like Taobao, Pinduoduo, as well as TikTok's sister app Douyin joining in, all offering deep discounts.

On the macroeconomic front, China's Consumer Price Index (CPI) for May increased by 0.3% year-over-year, mirroring April's growth, as reported by the National Bureau of Statistics. The index indicates that consumer spending is still not strong enough to notably push up prices, reflecting limited economic activities in the retail sector.

Weak demand has also partially affected the market capitalization of e-commerce giants: Alibaba's market value has fallen by 15.5% over the past year, while JD.com has seen a 23.74% drop. In contrast, Pinduoduo, known for its ultra-low-priced products, has bucked the trend and its stock price soared 94% during the same period.

Market cap comparison of JD.com, Pinduoduo, and Alibaba. Created by ChatGPT-4o.

Analysts generally attribute Pinduoduo's robust performance amidst an economic downturn to its strategy of offering steep discounts and its successful expansion into international markets.

In this context, JD.com, as the initiator of China's second largest shopping festival 618, has to take a cue from Pinduoduo's playbook by rolling out hefty sales subsidies. It looks like the move is working: JD.com saw a whopping 150% jump in sales of their most cost-effective products from May 31 to June 18.

JD.com added on Wednesday its turnover and order volumes reached a new high during the festival, though it did not share sales numbers. JD.com said 500 million customers took part in its sales promotion, with orders contributing to over RMB 1 billion in sales across 83 brands, representing 50% sales growth for more than 150,000 small and medium-sized merchants.

This year's 618 Festival isn't just about slashing prices; it's also a battlefield for AI innovation

Leading up to 618, Taobao unleashed a bunch of free AI tools, boosting everything from graphic design and copywriting to data analysis and store operations, helping sellers to boost operational efficiency, cut labor costs, and enhance competitiveness.

Pinduoduo is leveraging sophisticated AI algorithms for dynamic pricing, which adjusts prices in real-time based on market demand, inventory levels, and user behavior, maintaining competitive pricing while boosting sales.

JD.com has taken an even more aggressive approach by creating digital personas of CEOs from well-known companies to engage in live commerce—a wildly popular format in China. According to Syntun, social media platforms featuring live-streaming helped generate a GMV of RMB 206.8 billion (US$28.4 billion) during this year’s 618, up from RMB 184.4 billion (US$25.4 billion) in 2023, with Douyin achieving the highest GMV.

Digital versions of Gree Electric CEO Dong Mingzhu (left) and JD.com CEO Richard Qiangdong Liu (right) livestreaming on JD.com’s 618 shopping event.

Supported by Rhino, JD.com's in-house large language model (LLM), these virtual personas have engaged in over 5,000 brand livestreams, accumulating more than 400,000 hours of streaming, 100 million visits, and 5 million interactions, during 618.

However, consumers didn't respond enthusiastically to these digital characters, which they found weird, quirky and lacking the realism of live interactions.

The real deal of JD.com's AI strategy lies in its integration with seller services and logistics. According to the company, Rhino is trained on 70% generalized data and 30% specific intelligent supply chain data, which makes it more capable of delivering granular solutions to challenges in areas such as retail, logistics, finance, health and urban development.

Additionally, similar to ChatGPT, ChatRhino assists brands with customer engagement, image creation, and real-time marketing content production, leading to substantial reductions in production costs and time.

AI critical for JD.com's market position and growth, but underinvestment

JD.com faces a series of critical challenges: intense competition from Pinduoduo, shrinking overseas business, and underperformance in its cloud division.

The company has notably struggled to keep pace with Pinduoduo in the discount shopping and online grocery markets. To cut costs, JD.com scaled back its discount marketplace, Jingxi, in 2022.

Despite partnering with Shopify and Walmart in 2022 to extend its overseas presence, JD.com’s performance has been lukewarm, as evidenced by the absence of disclosed figures in its earnings reports. The company also shut down its sites in Indonesia and Thailand last year to streamline operations.

In comparison, Alibaba International Digital Commerce Group (AIDC) and Pinduoduo's sister app Temu are flourishing. As of the first quarter, AIDC experienced a 45% year-to-date growth to RMB 27 billion, accounting for 12% of total revenue. Temu has more than 100 million active users in the United States and was expected to have annual revenue of at least US$16 billion last year.

When it comes to the cloud business, JD.com lags behind Alibaba, which holds a considerable 39% market share in China's cloud computing sector. According to Canalys, Alibaba Cloud, along with Huawei Cloud, and Tencent Cloud, collectively control 73% of China's public cloud service market.

The logistics business is expanding but remains far from being a major revenue driver. Developing and maintaining advanced logistics infrastructure, including automated warehouses and delivery networks, requires substantial and continuous investment, which can affect profitability. While JD.com is growing its overseas presence with warehouses in multiple countries, the competition landscape and market challenges may hinder JD Logistics from becoming a dominant revenue source in the near term.

Embracing AI is therefore critical for JD.com as it can help the company maintain a stable market position by improving customer experience, optimizing operations and driving innovation.

When comparing the R&D investments of Alibaba, JD.com, and Pinduoduo for the first quarter of 2024, we observe significant disparities in their financial commitments to innovation and technology development.

Alibaba's product development expenses for the quarter ending March 31, 2024, were RMB 14.09 billion, representing 6% of its total revenue, a slight increase from RMB 13.88 billion in the same quarter of 2023.

Pinduoduo's R&D expenses in the first quarter reached RMB 2.91 billion, or 3.35% of total revenue, up from RMB 2.51 billion in the same period in 2023.

Since last Q1, the R&D expenses of Alibaba and Pinduoduo have fluctuated between 4%-7% and 3%-6% of total revenue, respectively.

In contrast, JD.com's R&D expenses in Q1 2024 totaled RMB 4 billion, accounting for just 1.54% of total revenue. This figure reflects a decrease of 3.6% from RMB 4.2 billion in the same period in 2023, when it accounted for 1.7% of total revenue. Since last Q1, the percentage has fluctuated between 1.7% and 1.4%, significantly lower compared to Alibaba and Pinduoduo.

The blue line represents the R&D expenses in RMB billions, and the red dashed line shows the R&D expenses as a percentage of total revenue. Created by ChatGPT-4o

This reduction indicates a cautious approach towards R&D spending amid the company's ongoing reorganization, raising questions about its commitment to fulfilling its promises regarding AI investment.

To stay competitive in the AI-driven e-commerce era, JD.com should prioritize genuine investment in R&D over initiatives like digital humans, which seems more like stunts than substantive innovation.

By prioritizing genuine technological advancements, JD.com can develop robust AI solutions that address core business challenges and drive sustainable growth. This strategic shift will not only enhance the company's competitive edge but also reassure investors of its commitment to long-term innovation and market leadership.

AI will reshape the e-commerce industry much like it is transforming other sectors. The global AI in e-commerce market is expected to reach US$22.60 billion by 2030, growing at a compound annual growth rate (CAGR) of 28.3% from 2024 to 2030.

Key drivers of this growth include improved customer experience through personalized shopping and recommendations, enhanced product discovery and search capabilities, fraud detection and prevention using AI-powered systems, and more.

Driven by strategic innovation and digital transformation, JD.com has grown from a small stall in Beijing's Zhongguancun to a global e-commerce giant. For those who may not be familiar, we have listed a brief overview of its key milestones:

1998-2004: The Beginning and Digital Transformation

Driven by the SARS epidemic, founder Liu Qiangdong transitioned from a brick-and-mortar counter to an all-web model, propelling JD.com into the realm of e-commerce.

2007: Logistics Innovation

JD.com built its own logistics network, enhancing delivery speeds and customer loyalty, established itself as a leader in China's fast-paced delivery ecosystem.

2011: Mobile Expansion

Capitalizing on the smartphone boom, JD.com launched mobile apps, improving user engagement and opening up new growth channels.

2014: NASDAQ Listing

JD.com's IPO validated its business model and provided access to global capital markets, facilitating further expansion.

2016: O2O Integration

By merging "Jingdong Daojia" and "Dada", JD.com enhanced its online-to-offline capabilities, seamlessly integrating digital and physical retail experiences.

2017: JD Logistics

The spin-off of JD Logistics marked the opening up of its carrier services, improving operational efficiency and expanding its industry presence.

2022: Global Strategy

Strategic partnership with Ottawa-based Shopify expanded JD.com's global presence and realigned operations to serve international markets more effectively.

2024: Consumer-Centric Innovation

JD.com canceled the pre-sale mechanism and optimized shipping rules to further enhance customer experience and strengthen its market leadership.

来源：Datayuan