I spent Singles’ Day 2017 visiting Alibaba and meeting with management (see Part 1 and Part 2 here). And one big highlight of the visit was a group dinner with Alibaba Vice-Chairman and co-founder Joseph Tsai.
Background: The awesome story of Joseph Tsai
Joe Tsai has been with Alibaba from almost the very start. Taiwanese born and American educated (Yale undergrad in economics and East Asia studies, JD from Yale Law School), he famously left his investment job in Hong Kong to join Jack Ma in 1999. At the time, he was working at Swedish investment group Investor AB.
Keep in mind, when Joe first met Jack in May of 1999, Alibaba was basically a free online bulletin board. It was a simple website where China suppliers and foreign buyers could post and connect. They would then do business offline and through banks. The website had only been up for a few months and there just wasn’t much to Alibaba as a company at that time. Plus Jack’s history at that point mostly consisted of his founding of a small translation services company (Hope Translation, 1994) and an online directory (China Pages, 1995).
So it was a really daring move to leave his professional career in Hong Kong and join a small, scrappy group in Hangzhou. Why did he do it? My reading is that he either believed in the potential of the technology and / or he believed in the potential of Jack Ma. But for both, it was a bet on “what could be”, not on what was.
But in 1999, Joe joined the small team – and he and Jack went on to write one of the greatest stories in business history. Over the next 17 years, this story included:
- The first $5M investment by Goldman Sachs. This was the deal that turned a small group with a primitive website into a credible company with a big idea.
- The early fight with Global Sources for the cross-border B2B market. Global Sources, run by American Merle Hinrichs, was a successful print catalog that connected Chinese suppliers with foreign buyers. Basically, it was an offline version of Alibaba.com and it was Alibaba’s first major competitor.
- The frantic early fundraising (they had no revenue model early on) and surviving the crash of the internet bubble in 2000-2001.
- The secret launch of Taobao in 2003. Note: if Alibaba.com was the online version of B2B-focused Global Sources, then Taobao was the online version of a C2C trading bazaar. Think an online version of the city of Yiwu.
- The now famous fight with eBay / Eachnet.
- The 2005 deal with Yahoo. Plus the later dealings with Yahoo CEO Jerry Yang (amicable) and subsequent CEO Carol Bartz (not so amicable but highly entertaining reading).
- The 2007 IPO of Alibaba.com
- The long association with Masayoshi Son of Softbank. Mr. Son is on my short list of people I am trying to meet (right between Jorge Lemann of 3G and Jessica Alba).
- The jump into B2C e-commerce with Tmall in 2008.
- The launch of Alipay, Alibaba Pictures, Ali Cloud and literally hundreds of other ventures and investments.
- The 2014 IPO, at the time the largest IPO in history.
It’s an amazing story. So it was pretty fantastic to find myself sitting at the table with Joe (along with Alibaba’s 14 other “global influencers”). Below are my 5 take-aways from the dinner. Note: this is my interpretation and these are not the opinions or statements of Mr. Tsai or Alibaba.
Take-Away 1: Solving problems is critical because it creates a larger pie.
He remarked about how much of business can be fighting other players in a static market. This sort of business is mostly win-lose, as you must take and defend from competitors. It’s difficult and can be very expensive.
But if you focus on solving problems, you can create new cost savings and open up new markets. You can grow the entire pie and increase the amount of money on the table. In this type of business, you can grow and thrive without necessarily taking from competitors. Solving business and societal problems is a better and more profitable approach.
Ashley Dudarenok of ChoZan and Frank Lavin of Export Now
Take-Away 2: Data with “high consumer intent” is particularly valuable.
There was a lot of discussion about data as a competitive advantage. Note: my experience is that data is rarely a competitive advantage. It is most often a necessary asset, like a good brand or an efficient factory.
Joe made an interesting comment about how data with “high consumer intent’ is particularly valuable. I thought that was a good phrase to remember. “High consumer intent” is what tells you what a consumer might want to buy. Or be ready to buy. Or be open to buying. These are the situations where a customer is already 50% of the way there in terms of buying.
Of course, identifying “high consumer intent” in data is not so simple. It could be search history but Alibaba is way beyond that. It could be buying a similar product. It could be leaving a review on a product that is highly correlated. It could be watching certain videos on Youku. It could be reading a certain book or article. I’ve been thinking a lot about what type of data shows “high consumer intent” in what categories.
Take-Away 3: Amazon and Google are great at AI.
My research is in competition (mostly the impact of data and digital tools on competitive advantage). And the question I really wanted to ask Joe was: What company are you most afraid of? Who are you most concerned about? As a rule, nobody knows a company as well as its competitors.
But I thought that was probably a bit forward. So I rephrased it to: Who did he think was really great at artificial intelligence? What companies did he follow, admire or look to when it came to artificial intelligence?
His reply was:
- Amazon is very good at AI.
- Google is also very good. He specifically mentioned their work in chip design and TensorFlow, their open source software for machine learning.
Take-Away 4: “New retail” increases use cases and speed of delivery. But Alibaba isn’t going to operate lots of stores.
Regarding “new retail”, Joe talked about how it would let Alibaba address several use cases in one customer visit. First, I really like how Alibaba keeps talking about retail with software language, like “high consumer intent” and “use cases”. His point was a customer can go into a Hema supermarket and can pick-up groceries already ordered on a phone, can order prepared food, can get laundry done and can have things shipped to their home. The integration of online and physical retail increases the number of use cases you can address at one time. That should lead to growth. I also thought this comment was similar to what CMO Chris Tung said the next day about being most excited about the “high involvement” customer situations in new retail.
Second, he mentioned the impact of new retail on the speed of delivery. Speed of delivery is mostly proportional to how close the inventory is to the consumer. And the new Hema supermarkets are a combination of a retail space and a fulfilment center that serves a 3km radius around the store. So they can delivery very quickly within this radius. Fast delivery is good overall but it is particularly important in categories like groceries (people usually don’t buy their food a week in advance).
Finally, he mentioned that while Alibaba owns 20 Hema supermarkets they are not going to own lots of them. They are going to franchise or license the system and technology to others. This is pretty similar to their approach in logistics with Cainiao. Across the board, they seem to like to provide data and digital tools but are not usually asset owners or operators themselves.
Matthew Crabbe of Mintel and Connie Chan of Andreessen Horowitz
Take-Away 5: Alibaba’s biggest gap is serving consumers outside of China.
Joe made a comment that he sees serving consumers outside of China as their biggest gap going forward.
This has always been my biggest question. Is Alibaba going to try and capture consumers outside of China? From the talk with Michael Evans (here), it was clear they are going after consumers across Asia. And they are going after merchants and brands globally, as they relate to Chinese consumers. But are they going to attempt to buy or build local platforms with local customers in places like Russia and Brazil?
Michael also said they are going global “selectively”. I took that to mean they would buy something if it came up and made sense. But they are not looking to build new platforms around the world. However, it’s worth keeping in mind, they regularly do over 50 investments and acquisitions per year (about one a week). So “selective” is all relative.
I’m thinking they are actively hunting for e-commerce platforms to buy. But aren’t planning on building them outside of Asia.
That’s it for Part 3. In Part 4, I’ll lay-out some other thoughts from the meetings, from the gala, from Nicole Kidman, and from the visit to the Hema Supermarket.
Part 1: Discussion with President Michael Evans is here.
Part 2: Discussion with CMO Chris Tung is here. Thanks for reading.
Cheers from a beach in Thailand, Jeff
The closing of the Double 11 Gala. Photo courtesy of Alibaba.
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