Ali's four big presidents "handed over the final papers": who is the "hope of the whole village"?

Everyone has a scripture that is difficult to read

Author | Hanxing

Cover source | Alibaba's official website

With the release of Alibaba's fiscal 2023 third quarter results (natural year fourth quarter 2022, hereinafter referred to as Q4), the report cards of the four business presidents over the past year are on the table.

In its Q4 earnings report a year ago, Alibaba changed the division of business segments, subdividing the "business operation" segment, which accounts for more than 80% of the company's revenue, into four segments: China Business, International Business, Cainiao and Local Life Services. Together with the previous cloud business, digital media and entertainment, innovation business and others, Alibaba's business landscape has been reconstructed.

Corresponding to the redivision of business is the adjustment of the organizational structure.

After 11.11 in 2021, Alibaba CEO Daniel Zhang set up four CEOs between the CEO and the president of the business group, namely Dai Shan in charge of digital business in China, Jiang Fan in charge of overseas digital business, Yu Yongfu in charge of local life services, and Zhang Jianfeng in charge of cloud business.

In the past year, around the four major businesses and the four presidents, Ali has carried out a series of adjustments, attempts and explorations. But the giant's two main lines remain unsolved: profitable businesses are growing slowly, and money-losing businesses are not yet profitable.

Dai Shan: It's hard to keep the rivers and mountains

In the year of taking over China's digital business, Dai Shan's biggest challenge is to maintain the basic market that contributes about 70% of Alibaba's revenue.

The customer management revenue of China's commercial sector is composed of advertising and commission income from Taobao and Tmall, which is the most intuitive embodiment of Alibaba's core e-commerce business. Over the past year, this segment of revenue has continued to decline, flat in Q1 year-over-year, and fell by 10%, 7% and 9% in the following three quarters, respectively. Taobao and Tmall's online physical goods GMV expanded to mid-single-digit year-on-year declines in Q4 2022 after recording low-single-digit year-on-year declines for three consecutive quarters.

The shrinking revenue of e-commerce business has led to a successive decline in the revenue of Alibaba's commercial sector in China. In Q4 2022, Alibaba China's commercial revenue fell 1% year-on-year to RMB169.99 billion, the third consecutive quarter of decline, and its share of total revenue fell to 69%.

Since taking over Taobao, Dai Shan realized that Alibaba's e-commerce business was close to the ceiling. At the beginning of 2022, Dai Shan established a strategic direction of "moving from transaction to consumption" for Taobao, halted the development model with GMV as the growth goal, and asked Taobao Tmall to return to the creation of consumer experience.

Focusing on the new strategy, Taobao and Tmall have carried out a series of shopping experience optimizations in the past year, especially in the important promotion node Double 11. Consumers no longer need to calculate complicated full reduction rules, no longer need to stay up late waiting for pre-sales to start, and the platform has increased the degree of discounts. (For details, see Snow Leopard Finance and Economics "Re-understanding Double 11")

However, from the results, the GMV during Double 11 in 2022 was the same as the previous year, and the overall downward trend of e-commerce business did not improve in Q4. Even the user activity and retention data highlighted in previous quarterly earnings reports did not appear in the Q4 financial report.

According to data from the Ministry of Commerce, the compound growth rate of China's e-commerce transaction value slowed from more than 30% to about 10% from 2015 to 2019, and is expected to further decline to less than 5% by 2025. While the overall development of the industry has reached the ceiling, old rivals JD.com and Pinduoduo have opened a price war with tens of billions of subsidies, and Douyin live e-commerce has grown rapidly, and GMV has exceeded one trillion.

Getting Alibaba's China commercial ship back into the growth channel is a difficult task, and Dai Shan will face even more severe challenges in 2023.

Jiang Fan: Complete the warm-up

Jiang Fan is responsible for the international digital business sector, mainly including Southeast Asian e-commerce platform Lazada, Turkish e-commerce platform Trendyol, which Alibaba invested and controlled in 2018, and AliExpress and Alibaba.com, which help Chinese merchants sell goods abroad.

In Q4 2022, the international business sector thripped with a year-on-year growth rate of 18% as Alibaba's business sectors declined or their growth rate declined. In the previous three quarters, Ali International Business's revenue growth rate was 7%, 2% and 4% respectively.

According to a late LatePost report, after Jiang Fan transferred from Taobao Tmall to the international digital business sector, he spent half a year sorting out Alibaba's overseas business, focusing on AliExpress, Lazada and other businesses.

More than half a year later, the results began to appear. In Q4 2022, Alibaba's international retail commercial revenue increased by 26% year-on-year to RMB14.644 billion, and orders from C-end business increased by 3% year-on-year, mainly driven by the growth of Trendyol orders.

Despite the significant increase, Alibaba's second largest source of revenue is still losing money.

As of the end of the fourth quarter, international business accounted for 8% of Alibaba's overall revenue, the same as the proportion of cloud business. In Q4 2022, the operating loss of international business was 1.661 billion yuan, basically the same as Q3, but narrower than the first half of the year. Among them, AliExpress and Lazada, which were "focused" by Jiang Fan, both improved their losses compared with the same period last year.

Unlike the domestic e-commerce ceiling faced by Dai Shan, there is more room to sell goods overseas. According to CICC Research Report, AliExpress and Lazada's cross-border e-commerce B2C market had a transaction volume of about 2.1 trillion yuan in 2020, and the market is expected to exceed 6 trillion yuan in 2024, with an average annual compound growth rate of 30%.

From the end of last year to the beginning of this year, AliExpress opened the "full custody" model to attract investment. Full custody means that the supplier and the factory send the goods to the platform, and the platform is responsible for the operation, logistics, after-sales and other links of the goods. According to the investment announcement, AliExpress's fully managed model does not charge commissions, and is mainly promoted in overseas markets such as Brazil, Japan and South Korea, Europe, and North America.

After a year of combing and warming up, Jiang Fan is ready to attack in 2023, but it remains to be seen how effective it will be.

Yu Yongfu: Streamlining, consolidating, and meeting the enemy

Alibaba's local life service business, which Yu Yongfu is responsible for, has been adjusted most frequently in the past year, reducing the cost of the "home" business and integrating the "destination" business.

In Q4 2022, the revenue of Alibaba's local life service segment was 13.164 billion yuan, accounting for 5% of the total revenue, a year-on-year increase of 6%; The operating loss was 5.473 billion yuan, which was narrowed from 7.733 billion yuan in the same period of the previous year.

Ele.me's average order value increased in the home business, and although the number of orders decreased in October and November, the overall GMV increased positively in Q4. At the same time, Ele.me's loss narrowed due to the decline in the cost per delivery order.

In terms of destination business, Fliggy launched organizational reform at the beginning of last year, becoming another independent company with independent operation, independent accounting and self-responsibility for profits and losses after Freshippo. Alibaba's in-store business (formerly "word-of-mouth") under Alibaba's life services segment will be merged with AutoNavi and Zhang Liang, the former head of in-store business, will report from Yu Yongfu, CEO of Alibaba's local life service company, to Liu Zhenfei, CEO of AutoNavi instead.

After more than a year of adjustment, Alibaba's local life business has basically formed a synergistic format centered on Ele.me and destination centered on AutoNavi in accordance with the Daniel Zhang's vision.

But just doing a good job of streamlining and integration is not enough for Yu Yongfu. As of Q4 2022, local life services remained the largest loss-making segment of Alibaba's main business, with an adjusted EBITA margin of -24%, significantly narrower than -41% in the same period last year, but still some way from achieving full profitability.

In addition, in the battle situation of local life, new players outside the old rival Meituan have appeared.

According to media reports, in 2022, Douyin life services will complete about 77 billion yuan of GMV, about 54% higher than the 50 billion yuan target set at the beginning of the year. In 2023, Douyin's local life GMV target is 150 billion yuan, almost double that of the previous year.

With Meituan in the front and Douyin in the back, it is not easy for Ali's local life to break through in the process of reducing costs and increasing efficiency.

Zhang Jianfeng: Technical background, return to technology

Among the four presidents in charge, Zhang Jianfeng was the only one who did not stick to the anniversary exam.

At the end of last year, according to the usual practice, Daniel Zhang issued an internal letter announcing the organizational changes of the group: Zhang Jianfeng will no longer serve as the president of Alibaba Cloud Intelligence, continue to serve as the president of DAMO Academy, focus on cutting-edge scientific and technological exploration, and will continue to be in charge of Pingtou Brother and Intelligent Interconnection. Daniel Zhang serves as the president of Alibaba Cloud Intelligence and is directly in charge of DingTalk.

Previously, Zhang Jianfeng, as the president of Cloud and Technology, was mainly responsible for Alibaba Cloud Intelligence, DingTalk, Tmall Genie, Damo Academy and Pingtou Brother.

The cloud business is seen as Alibaba's second growth curve and the only profitable business segment outside of Chinese commerce. In Q4 2022, cloud business revenue increased by 3% year-on-year to 20.179 billion yuan, further slowing down. In the second half of last year, cloud business growth fell to single digits for the first time.

On December 18, Alibaba Cloud's Hong Kong service base went down, affecting several Hong Kong and Macau websites. According to Alibaba Cloud's failure report, the cooling system of its data center room in Hong Kong, China, failed, causing server downtime for more than 12 hours, which is the longest large-scale failure in Alibaba Cloud's more than a decade of operation.

Daniel Zhang said in a subsequent internal letter that the success of customers is the success of Alibaba Cloud. "The probability of any failure occurring is 1 in 10,000 or 1 in 10,000 for Alibaba, and once it happens to every customer, it is 100%."

According to Canalys, the annual growth rate of cloud infrastructure services spending in China has slowed for three consecutive quarters since Q1 2022, falling below 10% for the first time. While business activity has recovered, business operations have not returned to pre-pandemic levels, and enterprise customers are reducing IT service costs to reduce operational risk.

Having taken over in person, Daniel Zhang remains confident in the cloud business. He said in the Q4 earnings call that the development of the cloud industry is a historic opportunity in China and the world, and it is also of extreme strategic importance to Alibaba. "Based on these two points, I have already served as the president of Alibaba Cloud, and I am passionate about this business, and such a historical opportunity cannot be disappointed, and we must seize such a historical opportunity."

When asked about the planning for the next 3~5 years, Daniel Zhang said that Alibaba will still adhere to the three top-level strategies of consumption, cloud computing and globalization, and will not look for the so-called new strategic track, because the ceiling of these three strategies is high enough and the market is large enough. "In today's continuous technological evolution, we still find huge opportunities."

When the elephant no longer runs wild, Ali needs a "Mr. Extreme" who can push the existing business higher than a Game Changer.