Ali's "separation", can it cure the disease of large companies?

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Jack Ma and the Alibaba Group he founded have become the focus of public opinion in recent times.

First, some netizens witnessed Ma Yun riding in a Kautex in the Wenyi Road Tunnel in Hangzhou, talking to people around him from time to time. Later, a school broke out, and Ma Yun discussed future education with the principal in Hangzhou Yungu.

Just when everyone "eats melons" what is the origin of this school that is so concerned by Teacher Ma, Alibaba Group released another explosive news.

On March 28, Alibaba Chairman and CEO Daniel Zhang issued an all-staff letter announcing the launch of a new round of corporate governance changes. That is, under Alibaba Group, Alibaba Cloud Intelligence, Taobao Tmall Business, Local Life, Cainiao, International Digital Business, and Dawen Entertainment have been established six business groups and a number of business companies. Each of these groups and business companies will establish their own boards of directors, implement the CEO responsibility system under the leadership of their respective boards of directors, and assume overall responsibility for their respective operating results. In the future, qualified business groups and companies will have the possibility of independent financing and listing.

This is considered "Alibaba's most important organizational change in 24 years." And when Ali is busy "separating", Douyin, JD.com, and Pinduoduo are also coveting a larger market space.

01

E-commerce users flow to Douyin?

Ali wants to "divide", the first thing that needs to be clarified is its huge asset territory.

According to the company's website, in 1999, Jack Ma, a former English teacher, and 18 other partners from different backgrounds founded Alibaba Group in Hangzhou.

Up to now, Alibaba's business covers China business, international business, local life services, Cainiao, cloud, digital media and entertainment, innovative business and other ecosystems.

What is the competitive position of Alibaba's six major business groups in the current market environment?

The first is the Alibaba Cloud Intelligent Group, which is in charge of Daniel Zhang. According to public information, Alibaba's cloud business mainly includes technical facilities that support digitalization and intelligence, including Alibaba Cloud and DingTalk.

According to the 2022 China Cloud Market data released by Canalys recently, the total sales of China's cloud market reached US$30.3 billion last year, of which Alibaba Cloud, Huawei Cloud, Tencent Cloud and Baidu AI Cloud had market shares of 36%, 19%, 16% and 9% respectively, and the four companies accounted for 80% of customer spending.

Although market share is still in first place, Canalys noted that 2022 was Alibaba Cloud's toughest year, with growth continuing to slow after strong growth in 2021.

At the same time, other giants are also watching. Among them, the revenue of HUAWEI CLOUD partners increased by 55%. Tencent Cloud launched a one-stop media service covering 400 media-related services; With the release of the local version of the ChatGPT model, Baidu AI Cloud may further attract enterprises to use its cloud.

Alibaba, which was born in the cloud market crisis, is also full of challenges in other businesses. Among them, it is the Chinese business part that includes the well-known Taobao, Tmall, Taote, Taocaicai, Xianyu, Tmall Supermarket, Tmall Global, Freshippo, 1688 and other platforms.

According to the financial report, in the fourth quarter of 2022, Taobao and Tmall's online physical goods GMV (excluding unpaid orders) recorded a median year-on-year decline. For the decline in GMV, Ali explained that it was mainly due to weak demand for apparel categories.

This does not bode well. You know, Ma Yun was once ridiculed for "earning women's money" and became popular. Nowadays, when it comes to buying clothes, the first thing that comes to mind is the affectionate shouting of major anchors on the Douyin platform. The rise of live streaming e-commerce has greatly eroded Taobao's market share.

According to the "Dianshubao" e-commerce big database, the penetration rate of live streaming e-commerce (live streaming e-commerce transaction scale / online retail transaction scale) will reach 25.3% in 2022. In 2022, the number of live streaming e-commerce users reached 473 million. What is this concept? Based on the total population of 1.412 billion people in 2022, about 1 in every 3.35 people is a live streaming e-commerce user, including the elderly and children.

From the GMV comparison of the head live streaming e-commerce, Douyin is far ahead with a live streaming transaction scale of 1.5 trillion yuan in 2022, followed by Kuaishou. In 2022, the scale of Taobao live streaming transactions will only be 770 billion yuan, about half of Douyin.

When others riveted and focused on a single field, Ali's "cauldron rice" suddenly became not fragrant.

02

Profits are supported by domestic commerce

Although China's business growth represented by Taobao and Tmall has begun to slow down, it still supports half of Alibaba's operating income.

Alibaba Group Holding Limited (09988. HK, hereinafter referred to as "Alibaba") 2022 interim report (March 31, 2022 ~ September 30, 2022 for the six months) shows that the company's revenue during the reporting period was 412.731 billion yuan, of which the revenue of China's commercial part was 277.366 billion yuan, accounting for 67.2%.

In contrast, in other sectors, the situation is different. Specifically, the revenue of international business, local life services, Cainiao, cloud business, digital media and entertainment, innovation business and others was 31.198 billion yuan, 23.705 billion yuan, 25.509 billion yuan, 38.442 billion yuan, 15.623 billion yuan and 888 million yuan, accounting for 7.56%, 5.74%, 6.18%, 9.31%, 3.78% and 0.22% of the total revenue, respectively.

When the math problem was calculated here, even Zheng Tanjun couldn't help but be taken aback. In addition to China Commerce, the largest contributor to revenue from other businesses is Cainiao, and Cainiao's revenue accounts for no more than 10%.

However, it is even more surprising from the perspective of operating profit. For the six months ended September 30, 2022, Alibaba China's commercial segment had an adjusted EBITA of RMB87.554 billion, but the company's total EBITA was only RMB70.583 billion. What's going on?

Zheng Tanjun quickly carefully read Alibaba's financial statements. From the adjusted EBITA indicator, during the reporting period, Alibaba's international business part lost 2.527 billion yuan, local life services lost 6.537 billion yuan, Cainiao, which ranked second in revenue contributor, lost 60 million yuan, digital media and entertainment lost 747 million yuan, and innovation business and other losses 3.842 billion yuan; fortunately, another cloud business contributed 681 million yuan of positive profit.

In other words, Alibaba's profits generated by China's commercial and cloud business operations during the reporting period will also take out more than 10 billion yuan to subsidize other businesses. Although the huge asset territory makes this part of the loss seem insignificant, the of a thousand miles collapses in the anthill. The huge asset territory is also easy for Ali to not feel the pain caused by this part of the loss, especially when the Internet giants are riveted and red-eyed.

During the reporting period, Alibaba's revenue grew by only 2%, compared with 32% in the same period a year earlier. In this case, anyone who changes to it must not be able to sit still.

When explaining this change, Daniel Zhang made it clear that after the organizational restructuring, the main body of Alibaba's listed company will not change, and the six large business groups will change from 0.5 layer to real 0 layer organizations, taking full responsibility for their own business. At the same time, the implementation of the CEO responsibility system under the leadership of the board of directors of each business group and business company, and the new leadership team must better think about how to face the market.

It is conceivable that after the change, an even more intense storm is coming.

03

Can "separation" cure the "big company disease"?

When the child is older, he can't always "gnaw the old", even if there are jackals, tigers and leopards outside, he has to go out and break in. However, behind the listing pie of "ideal is very full, reality is very skinny", Ali's change is bound to make some of its business suffer a lot in the short term.

So after the "separation", what is the relationship between Alibaba Group and business groups and business companies in the future?

Daniel Zhang mentioned in a later recorded video that each of the company's businesses was the object of Alibaba's investment, but it was originally raised in their own homes, and now they are allowed to face the market independently, the same as the company wants to make external investments. Daniel Zhang specifically mentioned that "the focus of the group's operations will change."

As for what is constant? It can be summarized in about four words: "mission" and "vision". To be honest, this metaphysical wording Zheng Jun sounded a little confused.

Except for the same mission and vision, everything else must be the same as external investment. This sentence can be said to contain a huge amount of information. If it is done well, it can be spun off and listed one by one; If it is not done well, will it be sold like outside investment?

In addition to the more market-oriented relationship with the group, the relationship between various business segments can be said to be very close in the context of Ali Group. For example, Cainiao is the designated partner of Taobao and Tmall. In 2020, Taobao, Tmall and Cainiao set up a special fund of 1 billion yuan to subsidize supply chain and logistics.

Cainiao Network cooperated with Alibaba Cloud to launch China's first logistics cloud platform. At the 2016 Yunqi Conference, Wang Wenbin, then CTO of Cainiao Network, announced that Cainiao Network and Alibaba Cloud would jointly launch the "Kunpeng Plan" to jointly promote the global logistics industry into the "days on the cloud".

In 2020, Ele.me announced that all business systems and database facilities had been migrated to Alibaba Cloud. On March 27 this year, Alibaba Cloud and AutoNavi released the "Vehicle-Road Collaborative Navigation and Industrial Services" solution, which is planned to be promoted at high speed across the country within this year.

However, internal cooperation may also neglect the broader external market environment, making it difficult to stimulate the passion for intrapreneurship.

So, what happens to the relationship between the subsidiaries after the separation? Daniel Zhang pointed out that when the company grows bigger, instead of encouraging everyone to collaborate in various ways, it is better to really use the market method to choose two-way.

On the whole, in order to lift the current situation of Alibaba's internal organizational structure, strong business dependence, and "wolf inadequacy", the knife reform is undoubtedly a step that must be experienced. But the short-term pain of reform is also inevitable. The next thing to see is how strong the determination of the "dolls" to really go to the market is.

Author | Zhang Yu

Source | Quest Finance (ID: teccj6)