How will’s ambitions to outsource its technology impact global retail?

From fleets of drones delivering orders to the rural Chinese countryside, to an autonomous warehouse which only needs four people to oversee an army of robots fulfiling 200,000 orders every day – we were blown away when Essential Retail was lucky enough to head to China last month to take a closer look at the advancements is making in retail technology. Even the less headline-grabbing insights – like its dedicated, temperature and humidity-controlled warehouse which is encouraging luxury brands to sell on’s Toplife marketplace – shows how the e-tailer is thinking big about every area of retail.

But these ramifications are on the other side of the world serving very different customers – so do retailers in the West really need to be too concerned about this Chinese retail jaugernaut?

Well, Google seems to think so. Last month, it invested a whopping $550 million into the Chinese company, in a partnership to explore ways of co-developing retail solutions to help personalise and improve shopping experiences.

What we need to think about is what’s on the horizon for What’s next for a company which sold $24.7 billion worth of products in a mere 18 days during its 6.18 anniversary sale last month?

Prior to our trip to China, we had heard rumours about plans for 1,000 store launches every day and entering the West to become a challenger to the likes of Amazon. But really, the answer is much simpler.

Scaling up

Chen Zhang, chief technology officer (CTO) at says the strategy for the business going forward is to scale the technology in order to outsource its developments to third-party retailers around the world. In other words creating a Retail-as-a-Service (RaaS) proposition.

It makes sense – has invested significantly into R&D creating robots to autonomously fulfil orders and fly parcels around the sky. Why wouldn’t it look at other ways to make money when its technology advancements are years ahead of most retailers?

“Everything is about scale,” explains Zhang during a media briefing in Beijing. “You invest in the technology – and you don’t worry about how much profit you’ll make, but [you think] ‘can this get to scale? Can this technology solve China’s last-mile delivery problem?’”

Zhang admits the company is not concerned about turning a hefty profit right now: “It’s OK not to make money in the beginning. With millions and billions of users, then the business model will come up.

“And with scale, comes profit,” he explains.

Monetising technology

But isn’t the first retailer to monetise its own technology. Amazon started selling its cloud services through AWS over ten years ago, and it also offers a logistics solution for its marketplace sellers Fulfilment by Amazon (FBA).

Meanwhile, the other significant retail player in the Chinese market, Alibaba last year launched a platform-as-a-service solution Apsara Aliware which sees its marketplace technology available to third-party retailers.

Forrester analyst, Satish Meena describes how digitally-savvy retailers have an advantage over incumbent technology vendors when selling retail technology because they can provide full-stack services, along with a live business case to third-party retailers.

“Most brands and retailers are not so sure of the output of investing massively into technology and infrastructure and hence opt for renting out services from a retailer who is doing it successfully than working with vendors to solve the problem from scratch.”

Back in the UK, Ocado is heading down a similar road in terms of strategy – it has built a reputable online business and invested in automation within the supply chain and it is now outsourcing its retail technology development to retailers including Morrisons in the UK, Casino Group in France, Sobeys in Canada and Kroger in the US.

Pick ‘n’ mix retail

But hasn’t just limited itself to creating the best supply chain technology it possibly can – it has developed autonomous land vehicles for delivery, an unmanned Amazon-Go-like store, a high-end grocery store concept, blockchain technology and it’s probably worth pointing to the order of 1,000 drones an unnamed retailers has already made. You name it in retail tech and has probably ticked it off its to-do list.

“You have to have the end-to-end experience then you have a better chance to make it efficient,” continues Zhang. “Not everyone can do it, but in this game it is about efficiency and whichever player can connect all the data and make the whole flow from UX, to supply chain, to logistics, makes the better chance of being efficient.”

And it is exactly this pick ‘n’ mix technology stack which could prove successful for Speaking to Miriam Burt, analyst at Gartner, she tells Essential Retail retailers are concerned that if they create different technology assets across the business, they run the risk of becoming obsolete or unsupportable in the long run, as well as relying on heavy capital investment. Essential Retail has spoken to smaller retailers who used to run their eCommerce operations in-house, only to lose members of the eComm team over time and with it the knowledge to run that part of the business. This is one of the reasons vendors like Salesforce and Oracle want to widen their own technology offerings by buying up the niche players in the market for significant sums.

“Being able to deploy asset light business models in a relatively short period of time can definitely be a competitive advantage in terms of being able to achieve speed to market, without having to rely on heavy capital investments,” explains Burt. “And any changes to business models can be supported more quickly on the tech side, because RaaS should have continuous and iterative improvement built into its DNA. This will enable them to respond faster and more flexibly to create innovative solutions to changing customer demands.”

But equally, the pros of outsourcing come with the cons – the main one being a lack of control of the technology.

“Any faults, adverse customer service issues could reflect badly on the retail brand, rather than the vendor or entity responsible for the delivery,” remarks Burt. “They may also not have the internal talent and skill to manage this effectively, management practices being geared towards more traditional business models.”

But having the choice between developing technology in-house or giving it a whirl yourself can only be a good thing. And for the majority of retailers, there is no choice: take creating a complete end-to-end fulfilment offering, the investment required to do so rather than relying on third-party last-mile companies, like DHL and FedEx, is just too costly, so that probably rules out creating your own branded fleet of drones.

And while it’s too early to determine whether will be the company retailers will turn to when they are in need of a drone or an unmanned convenience store, it is clearly a contender in the battle for RaaS.

For more insight on, have a read of the following articles on Essential Retail:

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