Alibaba

Alibaba’s New Strategy Is to Re-Ignite Ecommerce and Disrupt with Generative AI (1 of 3) (Tech Strategy)

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Alibaba is getting really interesting.

  • New leadership is in place. And Chairman Joe Tsai and CEO Eddie Wu, both with Alibaba since its founding, are definitely war-time CEOs.
  • The company appears more focused than in recent years.

And there are two big strategic moves happening:

  • Alibaba is refocusing on its two core businesses: ecommerce and cloud.
  • Alibaba is moving fast in generative AI, and they have a really compelling strategy, which I call “GenAI plus Platform”.

I’ll summarize both in this article.

1. Alibaba Is Re-Focusing on Ecommerce and Cloud

Group CEO Eddie Wu has been talking about refocusing back on the core on earnings. This is about going back to basics, which is always good to see.

There is the saying that “good times create soft men”. And “soft men create hard times”.

We see something similar in companies. Success and a lack of competitors leads to bureaucracy, a lack of innovation and weak management.

Well, Alibaba has been enjoying good times for a long, long time. Tons of cash flow. They have competitors but nobody was really threatening their market share. They weren’t worried about survival. Unsurprisingly, the company went into lots of far-flung businesses, such as newspapers and movie studios. Too many resources usually leads to a lack of prioritization.

The other part of that quote is that “hard times create strong men”.

I think that is what is happening now. Hard-charging and particularly innovative competitors like Pinduoduo, TikTok Shop and WeChat mini-programs are coming after Alibaba’s core ecommerce business. And they are taking market share. Shopee has already dethroned Lazada in Southeast Asia. And Shein and Temu have been out-innovating AliExpress in cross-border ecommerce.

That’s how I see Eddie and Joe. They are war-time CEOs, hard men re-focusing back on the core engines of Alibaba. Here is what Eddie Wu said in the February 2024 earnings announcements. I added the bold.

“This past quarter, we delivered steady growth while making organizational adjustments that align with our strategic focus. At the same time, we took a deep look at our core business operations and their competitive landscape.

“We concluded that to maintain our competitive edge, we must increase our investment in core capabilities and adopt a more aggressive approach towards competition in order to win growth. Our top priority is to reignite the growth of our two core businesses, e-commerce and cloud computing.”

2. Ecommerce Is Improving the User Experience and Increasing Frequency. Plus, Low Prices.

He detailed the plan for Tmall and Taobao Group (TTG), which was basically to re-focus on the consumer experience. And the plan for this is:

  • Expanding products. This means increasing the selection of branded as well as direct-from-manufacturer products available to customers. Which improves their experience and keeps the network effect going.
  • Competitive (i.e., low) prices. All the major ecommerce companies are focusing on low price strategies. Pinduoduo, in particular, has been leaning hard into low prices. It’s a powerful strategy for lower tier domestic markets and for a slowing economy. This strategy depends on bringing different types of merchants (i.e., smaller) on to the platform.
  • Improving the user experience (i.e., quality service). The KPI Eddie mentioned here is increasing purchase frequency. That is a good metric for user experience and engagement. It also creates a flywheel where consumer frequency increases spending over time.

Those three KPIs are a good summary of what they are doing.

And it is pretty much exactly same strategy JD has been executing for the past year. Both of China’s traditional ecommerce giants are now being led by their founders again. And both going back to basics and focusing on lower prices in particular.

3. Cainiao Logistics Is Being Leveraged as a Strategic Capability in Ecommerce

Over the past couple years, there was a lot of talk about Cainiao becoming its own independent business unit (which is not is). And also, a profit center. Amazon and JD have been talking about the same thing.

However, it looks like Cainiao is now back to being more of a key strategic capability for the ecommerce businesses. Alibaba has been aggressively building and investing in a global logistics network that is increasingly tech-enabled. That can be sold as an infrastructure service around the world, which they are doing.

But it is more powerful as a way for Tmall, Taobao, and AliExpress to deliver faster and cheaper than competitors. Both within China and cross-border.

Cainiao plus Alibaba Cloud plus New Retail (Freshippo) are powerful infrastructure for the ecommerce business. And they are very hard to replicate.

Since the 2023 re-organization, we’ve been waiting to see which business unit will start to move. And AliExpress, under Alibaba International Digital Commerce Group (AIDC), was the first to do that. The biggest surprise from Alibaba’s 2023 financials was AliExpress.

  • Orders grew by 60% YoY in the three months ended Dec. 31.
  • This was mostly due to AliExpress Choice, which was only launched in February 2023.

I wrote about that here.

And that was a lot about leveraging Cainiao into international ecommerce. AliExpress Choice is basically AliExpress with a 5-day delivery guarantee. Made possible by Cainiao.

Watch for the various ecommerce groups to make lots of announcements about very short, guaranteed delivery times for lots of locations around the world.

4. Alibaba Cloud Is Going for Growth. Watch for Low Prices and Big Investments.

I like Joe Tsai as Chairman. He has lived in ecommerce for 25 years.

But I really like Eddie Wu as the new CEO of the Cloud Business unit. Unlike its former CEO Daniel Zhang, Eddie is a technologist. He was CTO of Alibaba forever.

The key question for a re-focused cloud business was whether it would go for growth (i.e., taking market share) or operating profits?

That question has been answered. In the February earnings announcement, Eddie said:

“We have proactively optimized our business structure, reduced revenue from project-based contracts, and increased investment in public cloud projects”.

“We have also upgraded Alibaba cloud’s ales operations, establishing different sales and service systems to serve different types and sizes of customers.”

Great. And Alibaba Cloud has recently announced major price cuts. From Reuters in April 2024:

So, the focus is market share and growth for now. Note: Cloud has been growing much slower in China than in the US in terms of adoption and revenue. It’s not the same business. But GenAI services have been popping the numbers recently. Baidu just announced a significant revenue increase AI cloud from GenAI services.

I spoke about Alibaba Cloud in a recent podcast.

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Which brings me to Alibaba’s generative AI strategy, which is pretty awesome. And the guy to watch here is Zhou Jingren, the CTO of the cloud business.

I’ll detail that in Part 2.

Cheers, Jeff

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Related articles:

From the Concept Library, concepts for this article are:

  • Ecommerce
  • Cloud Services
  • Generative AI

From the Company Library, companies for this article are:

  • Alibaba
  • Tmall and Taobao
  • Alibaba Cloud

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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