While all the attention is on the regulatory crackdown on big tech companies in China, Alibaba has quietly announced the restructuring of its operations. It plans to form a new lifestyle services division, with Amap (a digital mapping platform), Fliggy (online travel), ele.me(on-demand delivery app), as well as Koubei (local commerce platform) falling under its umbrella. 

Alibaba lifestyle services - Organizational structure

Yu Yongfu presides over this newly minted business division, reporting directly to Alibaba President Zhang Yong. Meanwhile, Amap President Liu Zhenfei, Fliggy President Zhuang Zhuoran, and Alibaba Local Services Co.(ele.me and Koubei) CEO Li Yonghe will all report to Yu. 

Yu, the only elected partner after Alibaba’s IPO, is regarded as a key player in the company leadership. He has taken charge of almost every major non-ecommerce related business. After Alibaba had acquired UCWeb, Yu (UCWeb’s former CEO) first led Alibaba’s mobile business unit. Up next were stints at Alimama (as President), Alibaba Digital Media and Entertainment Group (as Chairman), and most recently, Alibaba’s global investment arm, eWTP (as Head). Throughout these reallocations, he has continued to juggle his changing responsibilities with his role as Amap Chairman.

Alibaba lifestyle services - Yu Yongfu

By restructuring itself and bringing in this trusted executive, Alibaba has thrown down its gauntlet: it is ready for an all-out war with Meituan, China’s largest on-demand local service platform. Meituan has become a serious threat with its real-time fulfilment abilities and growing merchant network. If left unchecked, it could redirect customer traffic from not only Alibaba’s subsidiaries, but also its core businesses of Taobao and Alipay. Meituan must be stopped, urgently.

Meituan: The de facto super app

Despite dominating ecommerce in China, Alibaba has long played catch-up to Meituan in the field of on-demand local services. This restructuring isn’t its first try at closing the gap– it revealed ambitions of usurping Meituan when it had acquired ele.me (Meituan’s direct rival) and merged it with Koubei (its food and lifestyle services arm). 

Since then, the two titans have gone head-to-head in almost every on-demand service market. Yet, Meituan has kept its heavy-pocketed and experienced rival at bay, highlighting the impressive organizational capabilities of its executive team.

In fact, when we were studying the Food Delivery Platforms in Southeast Asia, we felt that Meituan provided a benchmark for major players – such was the strength of its business strategy.

Alibaba lifestyle services - Food delivery report

Since its early days as a group-buying platform, Meituan has focused on building a large base of merchants through its relentless ground promotion teams (地推团队). By aggressively onboarding service providers, it can keep diversifying its business, whether it’s through on-demand delivery (Meituan Waimai) or ride-hailing (Meituan Dache).

At the same time, Meituan treats these subsidiaries as extensions of its core business, rather than standalone ventures. Every time it expands, it ‘recycles’ the resources that it has inherited from other ventures– when Meituan moved into hotel booking, almost 80% of its users were converted from its core food services.

Besides enabling cost-savings, this strategy also facilitates synergies within its ecosystem while creating a more frictionless user experience. Ultimately, by striving to provide a one-stop platform for lifestyle services, Meituan can encourage user stickiness– and more transactions.

Alibaba lifestyle services - Meituan

And that’s exactly the Super App strategy that players like Grab have started adopting in Southeast Asia as well. 

Alibaba brings its own ecosystem

Up till now, Alibaba had chosen to challenge Meituan through one-on-one fights between its companies (ele.me vs Meituan Waimai, Fliggy vs Meituan Travel). This type of fight favours Meituan because its companies are more tightly connected in its ecosystem and can draw upon advantages such as cost efficiency and user stickiness. 

A more integrated approach was needed, and we think that this reorganization acknowledges this hard reality. From this point onwards, Alibaba can challenge Meituan with its ecosystem.

While it may be complex for Alibaba to integrate all of these entities into an ecosystem, we think that Yu’s experienced leadership will increase its chances of success. Over the years, many people have dubbed Yu the “master of integration” (整合大师). It’s a nickname that he had earned at UCWeb, having oversaw the integration of over 10 companies, including PP Assistant and 9game.

Another not-so-secret ace in the hole for Alibaba is Alipay, the Alibaba-affiliated consumer finance app with more than 1.3 billion active users. Alibaba was already trying to draw Alipay closer towards its activities in lifestyle ecommerce, having planned to help over 40 million service providers open mini-programs on this mobile payment platform.

More importantly, Alibaba already intended for Alipay to complement individual subsidiaries such as ele.me

Alibaba lifestyle services - Investor sheet

We wonder how much more effective it would be when it is integrated into an entire ecosystem. 

Alibaba has chosen the right window

As Alibaba makes its move, Meituan is fighting to put out multiple fires. On the one hand, it is trying to manage a simmering public frustration towards its “excessive commission fees” on small merchants. On the other hand, it is also being investigated by the Chinese government for its alleged monopolistic practices. In other words, the timing may never have been better for Alibaba to challenge Meituan’s grip on on-demand local services.

Unlike the previous battles between Alibaba and Meituan, this confrontation will be one of ecosystems, which means that it may be the fiercest dogfight yet. This window that Alibaba chose does give it a head start, but the winner of this fight (if there is one to begin with) is still anyone’s guess. 

Will Yu be able to pull it off? More importantly, will Alibaba have enough patience to allow him to pull it off?

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.