E-COMMERCE: JD Tries Drone Cars, New Yihaodian CEO

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Bottom line: JD’s driverless vehicle delivery program will face problems due to chaos they create on city streets, while its naming of an Yihaodian CEO augers a prolonged new round of price wars with Alibaba for online grocery shoppers.

JD pilots driverless vehicles, names Yihaodian CEO

E-commerce giant JD.com (Nasdaq: JD) is making a couple of major new moves as the summer ends, led by an interesting program using ground-based driverless vehicles to deliver its goods. At the same time, the company has just installed one of its own top executives as CEO for Yihaodian, the online grocery specialist it recently acquired from US retailing giant Walmart (NYSE: WMT). This kind of corporate shuffle is quite common after such acquisitions, and we can probably expect to see some aggressive moves by new Yihaodian CEO Yu Rui as he takes over at the helm of the struggling company.

Among these two items, I’m most intrigued by reports detailing JD’s trials of unmanned vehicles that can deliver items to high-volume destinations like office buildings and convenience stores. (English article; Chinese article) The vehicles are quite small, measuring less than 1 square meter, and have 6 package containers of various sizes.

Much has been written about using drones to deliver e-commerce packages, but this is the first I’ve seen about using street-bound vehicles that look like remote controlled toy cars. JD says the vehicles are installed with software, sensors and radar that help them to recognize other vehicles on the road, as well as numerous obstacles they would encounter. They can also recognize traffic signals and use mapping technology to find their way to their destination.

The reports say the vehicles are now being road tested, and pilot operations could begin in October. I’ll be quite blunt and say I’m very skeptical of this plan due to the current state of chaos on China’s roads.

There’s no word in the reports about where exactly these vehicles will travel. Any attempt to put them on sidewalks would be hugely controversial and create danger for pedestrians. Bicycle lanes would be the most obvious choice, but even there they could create even more clutter and chaos than already exists in such lanes. Putting them on the streets with larger cars, trucks and buses sounds like a recipe for disaster, as these newer tiny vehicles would create a huge distraction and new obstacles for much larger vehicles that already make China’s roads quite chaotic.

I’m sure everyone will be watching closely to see how this plan evolves. I was skeptical about self-driving cars when that technology first emerged, but now it seems to now be developing at breakneck pace. So perhaps there’s still some hope for these tiny driverless delivery vehicles if they can find their own niche on China’s crowded roads and sidewalks.

Yihaodian’s New Leadership

Next there’s the Yihaodian news, which is mostly symbolic at this point until we start to see some actual new initiatives by new CEO Yu Rui. (Chinese article) Walmart announced its sale of Yihaodian in June, in an admission of defeat in the tough Chinese e-commerce market. (previous post) It received 5 percent of JD’s stock in exchange, and has now taken a clear backseat in Yihaodian’s operations.

Yu replaces Wang Lu, Walmart’s own former head of Asia Pacific e-commerce who was only at the helm of Yihaodian for about a year. The reports on Yu’s new position stress his credentials as a longtime JD.com employee, including earlier tenure as head of the company’s East China region which is also Yihaodian’s main customer base.

We already got a taste of Yihaodian’s new strategy last month, when JD announced it would position the company as its flagship online grocery store and would launch a 1 billion yuan ($150 million) campaign to promote the business. More conservative companies like Walmart are often reluctant to act so aggressively, as such moves usually lead to price wars that result in big prolonged losses.

Sure enough, JD’s chief rival Alibaba (NYSE: BABA) responded days later that it was prepared to spend even larger sums to promote its own online grocery business. (previous post) Based on this boisterous initial exchange, I suspect that Yu’s appointment will mark the start of a new era of grocery price wars between JD and Alibaba that will result in a bonanza for consumers but huge losses for each company.

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