At Alibaba’s Investor Day, CEO Daniel Zhang outlined 11 growth stratgies. Five were under Alibaba Cloud (Aliyun). These are the early days of cloud and, likely, a new paradigm for computing and connectivity. It’s chaotic and unclear. But Alibaba is very well positioned to win big.
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The mentioned slides are below.
Related podcasts and articles:
- #30: Ecosystems vs. Platforms
Concepts for this class.
- Ecosystems vs. Digital Platforms
- Platform Types: Coordination, Collaboration and Standardization
Companies for this class:
- Alibaba Cloud
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Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy podcast. And the topic for today’s class, the coming fight between AliCloud, Amazon Web Services and Frederick Hayek. Now that’s a little bit of a vague title, but in the last week or two, there was the big Alibaba Investors Day and they released their numbers and talked about their strategy and all that. And I think the thing that got probably the most attention in… in the press was their announcement that Ali Cloud, Alibaba Cloud is gonna be profitable in 2021. And that’s kind of a big deal because most people think this is a huge potential business, but it’s actually kind of a lot more than a business. I mean, this is a new paradigm. This is distributed computing and… you know, complete connectedness of everything from robots to cars to street lamps to phones to, you know, within that idea of cloud, there’s a huge question of what this is going to be. And I don’t think anybody knows yet. And it sort of tees up some sort of interesting bigger questions. And I think it even goes back to the, you know, sort of the original days of Frederick Hayek and centralized planning versus marketplaces and all that. I think it does throw in even that sort of stuff into question. So I’ll talk about that a little bit just for fun. But probably the more tangible questions are, okay, what is Alibaba gonna do in cloud over the next one to two to three years that’s gonna give them growth? And they’ve actually laid out five things they’re doing. So I’ll talk about that and how this is gonna basically put them head to head with Amazon web services in Asia and other places. So that’s gonna be great fun to watch. There’s gonna be a lot of cool strategy stuff when Alibaba and Amazon go head to head. So I’m kind of excited about that part in particular. Okay, let’s get into the class. But first, if you haven’t subscribed, please go over to jeffthousen.com. You can sign up there with a 30 day free trial. And we are sort of redoing the curriculum, the course structure, which right now is broken into six, seven, eight levels. We’re gonna sort of make that a lot more clear and have sort of a clearer pathway than I think we’ve had thus far. So. Several of you, actually quite a few of you, have gotten contacted by my assistant in the last week or so, and we’re doing a lot of conversations and sort of restructuring that. So that’s happening right now too. Okay, into the topic. For those of you who are subscribers, the kind of key ideas for today, the learning goals for today are learning goal 30, which is ecosystems versus platforms. And that’s kind of a vague bucket I’ve been using because there’s a lot of interesting stuff when you start going from Traditional businesses, products, service companies, restaurants, factories, whatever, what we would call pipeline businesses to platform business models, which I’ve talked about extensively. Okay, but then you kind of go up to the next level, which is ecosystems, because platforms are sort of creatures of ecosystems, but some businesses like semiconductors, it’s a whole ecosystem that works together. You can consider cities, ecosystems, you can consider industries, you can consider a lot of things. And that distinction between, I generally consider platforms to be a simplified business model that is based on a network or an ecosystem. Ecosystem I consider just to be sort of something that exists out in the world. And sometimes businesses create those, and sometimes they exist on their own, and sometimes they evolve that way. jungle is an ecosystem, the savanna is an ecosystem, business has ecosystems, cities are ecosystems. It’s kind of a catch-all for a lot of things going on in a connected way. So that’s under Learning Goal 30. This is ecosystems versus digital platforms. And the key idea there, that’s the idea. The second one is coordination platforms, which is one of my five types of platform business models. Okay, now my point with that is Alibaba is a pure platform creature. That is what they do. They build digital platforms. A lot of companies do this somewhat. Amazon kind of does this, but then they’re also a retailer. Google does this, but then they also create a lot of sort of utility tools that people use that aren’t necessarily platforms. Alibaba is really a pure breed. They’re very, very good at building digital platforms. That’s what they do. And so they’re good to study in that sense. And they put up a slide in their presentation. This is Daniel Jung, the CEO. And they put up a slide and I’ll put it in the notes for this so if you’re on a podcast, click over to the page and you’ll see it. But it’s basically invest for future growth. And they describe their business, of which they have many now, at three levels. Seeds, traction, profitability. Seeds are at the bottom. And they literally have pictures of roots and bushes. And they list various businesses they have that they consider seeds like Yoku, Dingtock, AliExpress, Ulema, T-Mall Mart, Lazada. And these are ones where they’re building the business, they’re getting the technology synced up, the business model synced up with the customer insights. And they’re basically trying to get the platform business model to spin, that flywheel to get going. As they sort of get that, they move up. Now they show them as trees, literally on the chart. Now they call it traction. So this is something like 1688, which is their wholesale B2B business domestically. Alibaba.com, which is cross border. And this is basically businesses buying goods from other businesses as opposed to consumers B2C. And then you move up to the highest level, which is profitability. And then, 1688 and Alibaba.com are basically, pretty close to that. Then at the top you get Tmall, you get Taobao, and they’ve listed up there Alibaba Cloud, because this is their big announcement, it’s gonna be profitable, it’s moving up to the next level. Also Ant Financial should be up there, but they’ve taken that out because it’s gonna go public, so they’re kind of reporting that separately now, but that’s definitely at that top level. So what you can see is, they’re sort of in this platform business model, they’re very good at it. If they get one of these platforms going, they get all the benefits of those, which are, you know, as I’ve talked about many times, these are platform business models. They have certain strengths. They get network effects, which is the one everybody wants. They get their multi-sided platforms, which means they can subsidize one side of the platform with the other. That’s why it’s free to watch everything on Youku or YouTube, but if you get a cable channel, you got to pay for it. They have chicken and the egg, this idea that they’re hard to get going. These markets tend to collapse to one or two players when they’re a platform, often and always. They’re highly scalable, especially if they’re asset light, which means they’re not building a lot of warehouses. They’re not holding inventory. You know, the users of the platform do the work for you and Alibaba tends to do asset light types of business models. JD doesn’t, they’re competitor, they build their own warehouses, they hire their own customer service staff, they hire the people that deliver the packages. Alibaba, for the most part, pushes that on to their partners and their users. So that’s sort of in their standard operating procedure. Okay, fine. And that’s good. But I think the thing that’s important here is just everything I’ve just mentioned is about competitive dynamics. the industry, the way it works when you build platform business models, you can get to a winner take all or a winner take most scenario where, you know, suddenly there’s one or two players in the market in e-commerce in China, and it’s more like five to seven, but there ain’t a hundred of them. You know, restaurants, there’s millions of them. So the nature of this sort of collapses the competitive dynamics to something that’s very favorable and very attractive. And generally in life, the fewer people that you’re competing with in, the better. However, the big caveat is that doesn’t mean you’re making money. Just because you have attractive competitive dynamics, it doesn’t mean your unit economics are good. Now they can be, and generally to have really good unit economics profitability, you generally have to have a favorable competitive dynamic. Because otherwise, if you don’t have, let’s say you have a business. where you don’t have a favorable competitive position and you start making a lot of money, well, people are gonna see it and they’re gonna jump in and they’re gonna take it from you and whittle it down. So generally, you gotta have the competitive dynamics to get to unit profitability, but it doesn’t mean you necessarily get that. And that really does play out in platform business models because certain platform business models like Uber, not their Uber Eats, which is actually kind of attractive. but their core ride sharing business, which is them versus Lyft in the US, you know, it is not even close to profitability. And they’ve been doing this for 10 years and they’ve burned how many billions of dollars in this? 15 billion, 20, I’ve lost track. It’s like 15, 20 billion dollars. And they’re still not profitable. And they may never be profitable. It may be that the external factors, the things like taxi cab availability, public buses, the possibility of walking, the cost of hiring someone to drive a car or pay them, it may be that those things just don’t let you get to profitability. Now that’s just the way that works. So there’s a spectrum of profitability across these, but I think it’s generally agreed upon that certain businesses are ridiculously profitable as platform business models. And e-commerce is gotta be in the top three. If you have an e-commerce platform business model, you don’t have to dominate China, have a little country. Do Ghana, no offense to anyone, Ghana. The economics are so attractive that you get the competitive position, you get positive economics, and those things just throw off cash. And when you look at their sort of chart, that’s what you see at the top of their chart in terms of profitability. It’s Tmall, it’s Taobao. It’s 1688, it’s alibaba.com. I mean, that is just a very attractive business to be in. Another one that tends to be very attractive is gaming platforms. Depending what kind of games you’re using, usually multiplayer, high engagement games tend to be very attractive, with the exception of sometimes you have to pay for the most profitable popular games, of which there are a few. That tends to be very, very profitable. That kind of powers Tencent’s engine. Empire more than anything else. Payment platforms tend to be very profitable types of platform business models. But others have not been terribly profitable. Youku and these video streaming sites in China have just been sucking up money forever because it turns out the advertising money you get or the willingness to pay of customers for subscriptions just doesn’t even come close to covering the cost of creating content. and you kind of have to do in-house content creation. TikTok found a nice way around that by using user-generated content. But it’s just the nature of the beast. Some businesses are more profitable than others, and that is true in platform business models. You kind of got to know where you are, and you can pretty much see that in their chart. So, you know, one thing I always like to point out is this company, C Limited, out of Singapore, which I’ve talked about before. You know, they got my attention years ago because I just noticed, well, let’s see, they’re in the gaming business and they’ve built a very clever platform business model in Southeast Asia gaming. And if you read their description of what they’re doing there, it’s very well thought out. They’re going after the most attractive piece within that. And then from there they said, let’s go into e-commerce, which became Shopee. And well, that’s very attractive too. And then they’re doing a payment platform, which is AirPay. It’s like, dude, you’ve chosen the three most attractive platform business models I can think of just about. And you’ve gone after all of them and they seem to be pulling it off. So I did sort of chat with a couple of their people online. I’m like, who’s doing your strategy? And the guy basically said, yeah, that’s me. I was like, dude, somebody knows what they’re doing. Anyways. So a chart that Alibaba showed, which I thought was interesting was like, where are their biggest trees going forward? And they listed two, not they didn’t put up Ant Financial, Ant Group. Ant Group is definitely one of their big growth pathways. The other two they listed are Alibaba Cloud and Tsai Niao. And Alibaba Cloud, they said they expected to turn profitable in 2021. Tsai Niao, they expected to be profitable in 2021 as well. Well, they said operating cashflow. to turn positive. So they used a little different language. I’m not as bullish on Tsai Niao because I think it’s sort of a lot of capital requirements, but that’s a whole nother stuff. We’re not going to talk about that one, but definitely Ant Financial and Alibaba Cloud and out of this the big discussion was okay, fine, and then they listed out 11 growth strategies. I took you through five of them for domestic consumption in the last podcast, but the other five were about Alicloud. So I’m gonna talk about, okay, how big is AliCloud gonna be? I mean, it’s actually kind of, and that gets you right into this question of, okay, let’s look at their growth strategies. It throws you right into this question of ecosystems versus digital platforms because it’s really fuzzy. This is a much larger event. The emergence of the cloud is a new paradigm. So it’s a bigger idea and it’s a lot more complicated than selling more on Taobao, which is easier to take apart. So that was kind of the tee up for today. And if you didn’t hear that previous podcast, it’s in the show notes, it’s podcast 50, which is what is Alibaba’s best growth strategy? And it was the links down below. All right, and my basic conclusion listening to the CEO Daniel talk was, okay, Alibaba is incredibly well positioned to win in cloud computing, but nobody really knows what that is. So it’s like, you’re in great shape. but we don’t know where this is going. And it’s a big complicated thing. I mean, as soon as you talk about cloud computing, let’s say you talk to Huawei. And what Huawei will say, and I’ve literally asked the CEO of this, what are you targeting within cloud computing? And they immediately bring up the subject of end-to-end solutions. It’s not just the cloud, it’s the cloud which encompasses… computing and increasingly intelligence, but it also includes connectivity, which is why Hawe does 5G, which is, you know, we’re not connecting just people talking on their phones anymore or sharing data or sharing photos. We’re talking about connecting everything to everything because you move from connectivity down to smart devices, which is everything from the smartphone to smart homes, to smart TVs, to IoT sensors and factories. to robots that are autonomous, to IoT sensors and cameras on the street. And you realize, you know, you can kind of look at the history of digital going back 30 years, and it’s, you know, the foundation has been increasing computing power and increasing connectivity. Computing power starts with, okay, we have computing power located in people’s laptops. or actually PCs, and on-premise servers at companies. That’s where the computing power was. And that was pretty much it for a while. And then it sort of became connected in the 90s by dial-up and stuff like that, and the web starts to emerge. And then we start to move, okay, 10 years later, we start talking about Internet 2.0, and suddenly everyone stops building applications that run on PCs, and they start building webpages. And that’s where the computing is happening now is it’s on the web, which is still drawing off servers and data farms and things like that. But okay, everyone starts building for the web. Let’s build a webpage. Okay, that’s paradigm, another paradigm. We shift to another paradigm, which is everything goes to a smartphone. Now smartphones get you a massive jump up in connectivity. because suddenly everyone is connected to everyone else all the time as opposed to whenever you’re using your PC. But you also see a drop down in computing power because smartphones can’t do anything like a big PC can do. Okay, but they’re still going up. You know, and everyone starts building apps. That becomes a big thing. Bunch of huge companies get launched. And then we start to move actually to mini programs, which is sort of the WeChat thing, and now people are building mini programs. Okay, so we have multiple paradigms, but generally speaking, we see a steady increase in computing power and where that computing power is located, and we see an increase in connectivity. So that’s a simple explanation for all of this. Okay, now what is cloud according to Huawei? Well, cloud is distributed computing. where computing is being done in these massive server farms, these data centers, but it’s also being done everywhere. It’s distributed across all the devices. Some of it’s being done on devices that sit in your pocket, some of it, that’s edge computing. Some of it’s being done within automobiles as they move, others being done up in the cloud, but the connectivity is so fast, it’s all connected in real time. So it’s sort of like the computing power is going everywhere and everything is being connected all the time. Oh, and by the way, we’ve got AI and machine learning coming up. So that’s starting to change what computing means where it’s suddenly not just making calculations, it’s making predictions and it’s starting to make decisions on its own. So now the robot is actually making predictions on where to take the package and making the decision itself to do it. I mean, it’s just it explodes in complexity when you start thinking about this next paradigm. And it’s very confusing. I don’t have a real clear thinking about it. In my mind, it’s sort of chaos. It’s just a Cambrian explosion of new digital tools, new use cases, new business models. new services, new products. And when you look up cloud computing, this is like kind of the list you’ll hear. You’ll hear, well, it’s cloud computing and it’s storage. Okay, storage is easy to understand, but you’re storing databases, Oracle, Larry Ellison, and data centers. Okay. Then once you’ve got all this storage, you’re doing big data and you’re doing analysis. Okay, that’s a whole field of study right there. And then what’s the more advanced version of that? It’s machine learning and AI, which is advanced big data and analytics. Okay, that’s a whole new field. Enterprise software, consumer software, networked devices, IoT devices, the operating systems that run IoT devices, cybersecurity, privacy, who do you trust with what access to what part of the web? Is it going to be the public web or is it going to be the private web? Private cloud, public cloud. 5G and all these other types of connectivity that are happening. Robots that are getting smarter, that can see things now and understand what they’re seeing. Autonomous vehicles, edge computing. I mean it’s just this explosion of activity. And one of the earliest podcasts I did, which was just sort of me more high, it was kind of like this one where there was a lot of high level hand waving, was podcast number 11 which links in the show notes. And I called that why digital is disrupting business, politics, culture, and society. And it was the analogy I made, which is not my analogy. This is widely cited. It’s this idea of a Cambrian explosion that like, if you go back millions of years, you know, all the organisms we see on the planet were pretty simple. A lot of bacteria, a lot of plankton, things like that. And you’re talking about billions of years. And then within a very narrow window of time, virtually all the mammals appeared. Happened very fast, and they called it the Cambrian period, the Cambrian explosion. And the argument, and this is my simplistic explanation, was it was the moment when the tools all were put in place finally, where the building blocks were there. Suddenly we had DNA. We had mitochondria, we had RNA, we had all the enzymes. And once the last tool was put in place, everything just started to be put together and organisms came out of every direction. And you had to hit that point. So the argument is we’re maybe at that point now where with the cloud coming in and all these new tools and the computing power and all of this, that we’re at that point where the tools are now gonna be in place very soon and we’ll just see an explosion. of new tools, business models, services, use cases, everything. That’s maybe where we are, and I think that’s maybe true. So anyways, so if Huawei is sort of going for an end-to-end solution, and you can see why they would do that, because they’re not a software company at heart, they’re a hardware company. So they’re building off their base, which is in connectivity, telcosystems. and smartphones, smart devices, and they’re trying to move from there up to the cloud and then offer the end-to-end solution. Well, Alibaba’s not doing that. They’re a software company and they’re a platform company. So they’re gonna live up at that one piece of cloud computing and distribution, and they’re not gonna start building base stations and stuff like that. So I don’t think we know where any of this, or I don’t know where this is going. And they actually put up some slides for what they’re doing, and they were just these chaotic. Here’s our full stack proprietary technology with world leading capabilities. And they’re showing all the multiple layers of we’ve got infrastructure and we’ve got industry solutions and we’ve got research and ecosystems and blah, blah. I mean, it’s just chaos. And that’s kind of how it looks to me. But within this chaos, it looks like a massive opportunity by every dimension. And it looks like Alibaba’s in the lead. So I don’t know where this is going, but they’re well positioned to win. We don’t expect to see 20 companies, right? When things went to the smartphone, two companies, Android or two services, Android and iOS became the operating systems for smartphones. In the PC era, it was kind of Sun and Microsystems, Microsoft and so we’re not gonna see 20 companies. It’s gonna be a game of scale. And who’s out front? Well, out of the US, Amazon Web Services, Microsoft and Google are one, two and three. And coming out of China, Alibaba, Tencent and Baidu are one, two and three. Right now, Alibaba’s got about 9%, 10% of global market share which sort of puts them fourth. So the Amazon, Microsoft and Google are arguably one, two and three. And Alibaba’s arguably fourth. I don’t really buy those rankings very much because I think it’s a different game. I think that just has to do with how developed the US system is based on, you know. The fact that these companies that are buying these services have been building ERP systems for decades and that’s not what’s happened in China. So I don’t buy their rankings. I think we see some leaders out of the West and we see some leaders out of China and then it’s gonna be a free for all. And but within that, I mean, by most metrics, it looks like Alibaba is in the lead. They’re doing well in China. They’re expanding to Southeast Asia. That’s a huge focus for them. That’s a strategic priority. I expect them to focus across Asia. And I think you will see them go international very aggressively. The political dynamic may have changed that, but I would expect them to go into places like Russia, Southeast Asia, India, depending on, that’s another political situation. OK, so that’s kind of the top down view, which is, I think it’s. fun sometimes, but I’m not really a top-down sort of person. I’m a bottom-up sort of person. So let’s actually look at what they’re doing. And I’m sort of watching for three things. I’m watching for infrastructure, I’m watching for platform business models, and I’m looking for vertical solutions. Out of this chaos, I’m looking for who’s getting traction on any of those three things. So infrastructure is just, you know, putting the… the building blocks in place that everyone else is gonna build on. So I actually, I sat down when I was with Huawei and I had, I thought this was gonna be a clever question for the CEO. Cuz I wanted to know, okay, within the cloud and within all of this, what are your top three priorities? You know, business solutions, what are you focusing on most this year? And I thought that was gonna be a good question, and he basically didn’t answer it. He basically said, we’re building infrastructure. and then businesses will build on that whatever they choose. So they’re building the connectivity, the cloud services, the smart devices. And then if the railroads start doing a lot of stuff, that’s cool. If the airports, which actually they are, the airports in China do stuff, that’s cool, which they are. Financial services, banks maybe, security is obviously a big one. And he just kind of… He said, look, we’re building the infrastructure for everybody else, and we’ll just respond to what they need. So he’s clearly thinking about it at that level. What does that mean? Well, that means building a lot of cloud-based services, infrastructure services. It’s getting all the chips and the servers and the hardware and the software integrated. And that’s a whole world that’s beyond my expertise. That’s sort of deep in the tech stack. But you know, they’re gonna build all these things and let everybody sort of, you know, build on top of that. It’s more like, look, I don’t know how the smartphone works. I understand the operating system and everything that people build on that, which is a lot of business activity. I don’t really understand all those mechanical parts in the smartphone. I’m not really sure what they’re doing. So, okay, look for infrastructure plays being built. That’s gonna be something to watch. I think Huawei is gonna focus on that. I think… Alibaba is gonna try and do some of that, but they’re mostly gonna focus on software. And they call this infrastructure as a service, which we’ll see all the time, infrastructure as a service. Okay, interesting. The level I think is more interesting is, okay, who’s building platform business models? Because one of the interesting things about when things go digital, and that’s really what this is about, a lot of the world is being digitized and connected. When that happens, you can often see a platform business model emerge where there wasn’t one before. You know, you digitize location by putting GPS in every smartphone, and suddenly that gives rise to something like Uber that can jump in there and take on taxis with a platform business model where there wasn’t one before. So I’m looking for out of all this infrastructure and all this chaos, I’m looking for someone to jump in with a new platform business model where we haven’t seen one before. And that’s… Pretty interesting and sure enough, one of the top priorities Alibaba mentioned at the conference was DingTalk. Actually they said Cloud plus DingTalk. DingTalk is their, basically their WeChat for enterprise. You know, Alibaba wanted to be in social media. But WeChat just ran the table on the B2C side so because they couldn’t win, they focused on B2B, you know, many years ago. Turned out to be a good idea. That’s DingTalk, they’re the market leader on the enterprise sort of B2B communication service. So, you know, one of their big priorities is cloud plus DingTalk, which is, you know, if we already have all the people within your company using DingTalk to communicate and chat, let’s start layering on other services. That’s a pretty standard collaboration, coordination, platform play. And that’s one of the five platform business models I’ve talked about, which is coordination platforms. Zoom, WeChat work, Slack, Microsoft Teams, Dropbox, Box.com. That’s, there’s a ton of this going on in the US right now. Okay, so good. They flagged that one. They’re going after DingTalk and trying to turn that into a collaboration coordination platform. Cool. I’m gonna keep an eye on that, see how they do. They’re actually in the lead. The other thing I was looking for was vertical solutions. Okay, this is just industry specific use cases. What are the banks doing? What are the hospitals doing? What are the retailers doing? Is anyone jumping on this new capability and doing stuff we haven’t seen before? And big surprise, what is Alibaba talking about? Well, they’re talking about merchant services because they have their e-commerce platform so they start to offer more and more cloud-based services for all the merchants. So when I went to the in-time department store, which is their new retail version of a department store, and they have their sort of big one in Hanjo, what they said one of the first things they did is when they took over this department store, they moved all their operations up to the cloud. So just digitizing the operations, move it up to the cloud. And they had a bunch of case studies they mentioned. They mentioned online education, TAL, T-A-L Education Group. For those of you who are familiar with that, they’re doing some stuff with them. They mentioned manufacturing. We’re gonna digitize the operations. This is their new manufacturing. We’re gonna run all that on the cloud. A lot of manufacturing specific solutions. Public services, that’s some security stuff. Anyways, you can see they’re sort of building out various industry verticals and tools by moving those things up to the cloud. And their playbook is kind of what you’d expect. It’s transportation, education, financial services, retail, and a couple other things. No big surprises there, but that’s kind of what I’m keeping my eye on. Platform business models and really compelling vertical solutions that I think move the needle and trigger any of one of my six digital superpowers. That’s what I’m keeping an eye on, and we’ll see. But these are the early, early days. So that brings us to their five growth strategies for cloud computing and data intelligence. And that’s actually, I like to pay attention to the language they use because I think they’re very thoughtful about that. But, you know, Daniel outlined 11 strategies. Five of those were for domestic consumption. One was just, we’re gonna go international. And that basically meant Southeast Asia and also AliExpress. And then the other five were under the quote, cloud computing and data intelligence. So that’s interesting language. And you know, they’re fine. Here, I’ll read you the five I’m putting the slide, their slide in the notes, but I’ll just take you through them real quick. It’s nothing earth shattering here. Quote, to empower consumer brands to achieve end to end digital operations, leveraging Alibaba business operating systems, unquote. Okay, they’re gonna provide services for consumer brands and merchants. Big surprise, because that’s one of their major user groups, whether it’s in e-commerce or whether it’s in local services. They’re always connecting merchant with consumers. They’re gonna start providing tools that let those groups digitize their operations and move them up to what they call Alibaba Business Operating Systems. Okay, I mean, they’re playing to their strengths. and making them smarter and better, and that’s great. Number two, quote, to transform the entire logistics supply chain to digital and intelligent operations. OK, more or less the same story. One of their core foundational capabilities is providing not just logistics, but sort of supply chain services to their merchants that they don’t deliver anywhere. They can buy fresh fruit out of Mexico China in a couple days, blah, blah, blah. Okay, they’re gonna move all of that up onto the cloud as well, logistics supply chain. Daniel did talk about this a little bit. He kind of said, basically, they’re gonna move beyond this idea of just digitizing packages. Hey, track your package, we know where it is. They wanna digitize everything within logistics. So every vehicle, every courier, every point of service. every automated drop box, every asset within the entire supply channel, they wanna digitize the whole thing. Interesting, that’ll produce a lot of cool data. Number three, quote, to upgrade all enterprise IT infrastructure to cloud. I mean, that’s kind of a vague vision statement. I don’t know how you’d execute against that. Yeah, I mean, this is the idea of they wanna go after the B2B enterprise side. You know, China and Asia and most of the developing world really is in a different situation than what we see out of the West or Japan, where we don’t have these enterprise systems that have been built for many decades. And you know, that can be a strength and a weakness. It’s a bit of a weakness because you’re behind, obviously, but also not having legacy systems. Sometimes you build a solution that is more appropriate to the new paradigm. You know, the famous example of this is the iPhone. Like how did the iPhone, how did Steve Jobs finally beat Microsoft? Microsoft used to run the operating system for PCs and then Steve Jobs, Apple jumps in and takes it for the smartphone. It has a lot to do with the fact that they kept trying to make the smartphone operating system compatible with all that stuff they had built in PCs and they got kind of a half solution where… Steve Jobs didn’t have that legacy. He could build a pure new solution for this new paradigm. So these enterprise IT systems that are being built from the cloud from day one may have some interesting strengths. It’s worth keeping an eye on that. All right, number four, quote, to transform the approach to work to cloud-based collaboration. That sounds like we want to turn DINGtalk into a platform business model. And I like that they use the word collaboration because that’s kind of my word I use, is collaboration and coordination platforms. One of my five types of platforms. And yeah, pretty vague, but okay. I think we know where we’re going with that one. That one’s actually easy to track and you could sort of figure out how well they’re doing. And the last one, quote, to build industry solutions based on cloud plus big data plus intelligent applications for sectors such as retail, financial services, public sectors, transportation and healthcare.” That sounds like the vertical solutions plan, right? So infrastructure, platform business models, vertical solutions, that’s what I’m keeping my eye on. This seems like, okay. This is our vertical solutions business that we’re working on right now, and we’re working with a lot of industries. Fine. And that was sort of my takeaways. And it’s vague, it’s chaos. We’re in the early days. Alibaba and Amazon are both positioned to win big here, as is Microsoft and Google and Tencent and Baidu, but those are the leaders. And it looks like a… a global or at least a regional game of scale. You know, this is gonna have all the classic digital economics of, you know, big fixed costs, lot of upfront costs, lot of spending today, billions and billions to be spent to build. And then you’ll get these major platforms that because they’re mostly fixed costs have a lot of operating leverage and throw off a lot of cashflow, which is how Bill Gates became a billionaire. And so I don’t think we’re gonna see. country-specific solutions in this space. I think it’s gonna be sort of the big players going head to head globally. So that’s Amazon versus Alibaba, and we’ll see what happens. But yeah, it’s pretty fascinating to watch, and I don’t know where it’s going. I’m glad I’m not an analyst trying to value this. Like, you know, all the equity analysts, you know, after the announcement that we’re gonna go profitable with Alibaba, they’ll have to sort of start projecting out cashflow from this business. I don’t know how you’d do it. Thankfully, that’s not my job. Anyways, that’s most of sort of my content for you today. I just wanted to tee up one other idea. So I kind of said, look, it’s the fight between AliCloud and AWS. But I’ve also sort of teed this up as the fight with Frederick Hayek, who is the famous 1940s economist, who very, very important person, obviously. I’ve talked about him before in podcast 11, which was sort of high-level thinking. And the simplistic explanation of this, so please, those of you who are economists, don’t get mad at me for my simplistic explanation, was this idea of sort of the Soviet Union versus the US, this idea of a centrally planned economy versus a marketplace, which is not controlled, not centrally planned, it sort of goes on its own. And what Hayek wrote in his famous book was Road to Serfdom. basically argues that central planning fails because it requires perfect information. And that’s actually impossible because information doesn’t exist on a book. Information exists between things. It’s not what one person knows all that. That is important. It’s also the coordination of knowledge and information between things. And… That’s kind of what markets are if you think about it. It’s one person buying from another and they’re exchanging information to come to an agreement and that coordinated knowledge between people is a price. A market price is sort of a rough crude estimate of that. And his thing is, you know, we basically live in fragmented and decentralized information worlds. So he called it local knowledge. The knowledge is local, it’s between people, it’s between things and it changes all the time. So any sort of centralized coordination of large scale economic activity just doesn’t make sense. And people sort of paint that across the whole Soviet Union versus US argument, and then the US did well and Soviet Union didn’t, so that sort of vindicates that a little bit. But you need a market mechanism, or you need some mechanism to both aggregate and react to local knowledge of all the participants in real time. And that’s kind of what market pricing is. It’s a very crude, well not crude, but it’s a simplistic way of doing that. So it’s almost like a primitive computer within the ecosystem that is capturing this knowledge and the data is basically pricing. And that thinking teed up Ronald Coase who won the Nobel Prize for basically talking about coordination costs, because he asked the very good question of, okay. If that’s how ecosystems work, we could call it market ecosystems, this knowledge, how do you coordinate economic activity? Then why are there firms? Because firms don’t look like marketplaces and they don’t look like, they kind of look like little Soviet unions. There’s a person in charge or a couple of people in charge, they have command control hierarchies, reports go up and down. I mean, what the Soviet Union tried to build looks a lot like your standard company. So it’s like you have these little centralized planning entities stuck within a larger marketplace or ecosystem. You know, why does that exist? And then that tees up the whole idea of coordination costs. And I’m not gonna go into that because I’ve done it before and it’s not relevant, but that’s kind of standard thinking. And along the way, there’s been this strange idea of, you know, maybe all of that thinking. maybe it’s not an absolute economic understanding or truth, maybe that’s reflecting the technology of the time more than anything else. Because when I look at Alibaba’s marketplace, it’s like, okay, you have a centralized authority that appears to have almost perfect local knowledge. Like all the data is being captured, we have buyers and we have sellers. We have all the transactions, we have the data going up, the data’s being crunched, and you’re getting tremendous insights, and you have all this coordinated activity. I mean, isn’t that kind of a contrast to that whole argument? Maybe the technology never existed. And maybe these platform business models, Facebook, Google, Alibaba, Amazon, maybe they’re accomplishing this. I mean, that’s a strange thing to think about. Now there’s other factors, if you were gonna argue, are these things good or bad? There’s other factors like choice and competition and antitrust and all of that. But at least from the Hayek argument, it looks like these companies are getting good at capturing and aggregating local knowledge and coordinating economic activity in a way that we used to think was only possible through just a free for all marketplace. That’s kind of an interesting idea. Okay, and then that tees up, which is my point in all this, the tease up the idea of, okay, what happens when we move to the next paradigm, which is cloud computing, where we have ubiquitous computing everywhere. Everything is smart and everything is connected. Every computer, every fan, every person’s smartphone, every streetlight, every car. every package, every palette, every robot, everything has computing power embedded in it now. So it’s generating data and it’s all connected so we can gather that local knowledge in one place. I mean, are Amazon and these cloud companies, are they gonna be able to do what Hayek said was impossible? I don’t know. It’s kind of interesting to think about. I don’t think you could do it everywhere. I mean, you can’t coordinate a whole country or anything, but could you do an industry? Could you do one city? Could you do a village? Could you do healthcare within one state? It’s like, God, we’re getting close, maybe. You might be able to have a central planning or coordinating activity that really does work. and does capture the knowledge and doesn’t become super inefficient. And in fact in some ways it might become smarter. Hmm, that’s kind of an interesting thing to play around with in your head. So that’s why I called it sort of you know the coming fight between Alibaba and Amazon which will be really fun to watch and then maybe Frederick Hayek’s ideas which will you know just some theoretical stuff. Okay that is it for the content for today. For those of you who are subscribers, this is all under learning goal number 30, ecosystems versus platforms. That’s kind of the key idea and also, coordination and collaboration platforms, which is one of our five platform business model types. So for the end of the podcast, I thought I would try and find some fun stuff to recommend. And I was on YouTube and I was thinking, what do I watch on YouTube that I think is funny? And one video I watch, or series of videos I watch, is called the Can Opener Bridge, which I suspect people in Asia don’t know about this. There’s a bridge in North Carolina in the United States, which is nicknamed the Can Opener. It’s in Durham, North Carolina. And it is famous for trucks going under it, and it’s low. The bridge is low, you drive the truck under it, and it just cuts the top of the truck off. And it’s like 11, be eight inches or something like that. And it’s historical because there was a railroad on top of it. So you can’t really move that up because the railroad is still there. And I guess you can’t lower the street either because there’s sewer or something. So anyways, it’s been going on forever. And about once a month, some truck comes screaming down the street, hits the bridge and the top just gets cut off the truck. I mean, it’s like it eats the truck, hence the can opener. It’s really funny. And some guy, I guess his office is there or he lives next door, he put up a webcam and he just always videotapes them. And his video channel on YouTube has like 151 trucks getting eaten by this bridge. Anyways, go on there and watch, it’s really funny. And they put up signs and stuff and they say, hey, flashing red signs, no trucks, no truck. But people who rent trucks for moving, they don’t know. So I guess it’s rental trucks that are getting eaten on a regular basis. It’s really pretty funny. That’s one I’ve been watching for no reason whatsoever. The other thing I’ve been watching on YouTube is there’s these videos of North Koreans, actually South Koreans, but also North Koreans who have escaped, who now live in Seoul, and they give them American barbecue. Like. Because, you know, coming from North Korea, you wouldn’t know about this. And they, you know, they come to a little restaurant and they videotape it or they cam it and, you know, they’re trying like Texas barbecue, which is a ridiculous. Have you ever had American barbecue, which maybe people haven’t? It’s a ridiculous amount of food. It’s like half a cow. And so they show these North Korean refugees like here’s Texas barbecue and here’s Tennessee barbecue and they give them buffalo wings. And it’s really funny to watch the reactions. So anyways, that’s the other one. Two random recommendations, but it’s worth hunting. You can just type in like North Koreans try American barbecue. It’s strangely enjoyable. Anyways, those are my two random recommendations for this week. And that’s it. Thank you so much for listening. I appreciate your time. For those of you who I’ve talked to on the phone in the last week and there’s… more scheduled for the next week. I really do appreciate your feedback. We are going to sort of rejig and rethink all of this, but yeah, fantastic feedback. It’s really, really helpful, so I appreciate your time. And that’s it from me from Bangkok. Take care and I will talk to you next week.