Yesterday (20 Dec), Alibaba Group announced that Eddie Wu, CEO of the Company will also serve as the CEO of Taobao and Tmall Group. This is just 3 months after Eddie took over as Group CEO.
In this episode, we delve into:
- Alibaba Group’s transformation journey in 2023 – the highs and lows of the organisations restructuring efforts;
- The external pressure on Alibaba, especially from newer players – Pinduoduo and Bytedance;
- Alibaba Group’s efforts to remain agile in the ever-changing tech ecosystem;
- The role AI will play in enhancing the operational efficiency of companies
Check out the full podcast here:
Also available on Apple podcast – here.
[AI Generated transcript]
Hello, everyone, and welcome back to another episode of the Impulso podcast. On today’s episode, we’re going to be discussing the recent news.
Yesterday 20th December, Alibaba Group announced that Eddie Wu, the current CEO of the company, and chairman of the Taobao and Tmall group, will start serving as the CEO of the Taobao and Tmall group with effect from 20th December 2023.
That’s yesterday. Yes, it happened the day it was announced.
Yes, very fast. So this happened three months after Eddie, who is one of the co-founders of Alibaba Group, took over as CEO.
He also took over as the CEO of the cloud division, around the same time, so a lot of things are happening.
A lot of changes, and then obviously, when wel read the news, the news will say that it is because the market share is faltering. Or some people are saying that, Oh, maybe the group has not thought through, because earlier this year, when Alibaba announced that doing this split of the group into six, I think the news was generally positive, people said that it is bold, it is good to do that. But over the course of three quarters afterwards, there are a lot of additional changes, and some of the decisions were reversed. And of course, outside commentators, some of them are saying that, maybe some of the changes were not well thought through, etcetera, etcetera.
So, we’re gonna unpack this, in this episode, where we talk about exactly what’s happening, what are the challenges, and how the thinking is to actually steer the group in a current challenging macro and internal dynamics.
So but anyway, back to back to the topic, we were talking about the topic. I think, Sabrina, you were in office when he visited us last year? What’s your impression about him?
So we met him last year, when he came over to our office. I think my impression of him is that he’s very quiet. I’m not sure if he was, I found him quiet because he speaks Chinese. And I don’t speak that well. So maybe that’s why. But he looks like he works in tech. He has the geeky look, he has the specs of the black frames. So when you see him on the streets, you would think that’s a guy that’s working in a tech company.
So he was the first programmer for Alibaba, employee number four. And he has been with the groups since the founding of Alibaba. So obviously, I mean, over the last few years, he built a career in investment. And where he looked into a lot of life before looking at Tech, I think he’s fun was one of the early backers of Li auto, which obviously was very successful. They also looked a lot into AI, financial technology, and everything else that’s at the forefront of the ecommerce ecosystem. So the impression from lots of people about him is that he’s quiet, but very observant. And I’m quite shocked with his perspectives.
So now he’s the CEO of not just Alibaba Group, but also of Taobao and Tmall as a whole, right. So, of course, this change, it was just announced yesterday. And it’s also two weeks after Pinduoduo’s market cap actually overtook that of Alibaba.
What are your thoughts on the current landscape in the Chinese market? And what do you think this means for Alibaba as a group?
I think, obviously, when Pinduoduos market cap overtook that of Alibaba, it was a huge shock for everyone not only in Alibaba, but across the E commerce ecosystem, right?
Because Alibaba has been this large existence in a whole tech sector in a whole commerce sector in China over the last two decades and it has created a lot of great things and people don’t wait to start it you know, people are saying that oh, this company is you know selling fake stuff selling cheap stuff selling like to too low to be taken seriously.
If you remember there was this quote at “First they ignore you, then they laugh at you, then they fight you, then you win.” Many people misattribute this quote to Mahatma Gandhi, but it was actually, I think, said by some workers movement leader in the US many years ago.
But anyway, so back back to Alibaba. So the group is in a situation where a few years ago, in a core ecommerce sector, it had 80% market share. And together with jd.com, they occupied the whole ecommerce space in China and now you have Pinduoduo which is surging really fast. And you have you have also Tiktoks cousin, Douyin, which is owned by Bytedance, which is actually very aggressively moving into E commerce and into local services
We see them expanding in global markets as well.
Yeah, these two companies, Pinduoduo and Bytedance, have been making pretty good successes so far in global markets. So I think that Alibaba, JD and everybody else have tried to do since 2016. But obviously, the success has been limited. So this week, there are also rumours right on the news by international media that Bytedance’s revenue has overtaken that of Tencent. And also there were rumours saying that Bytedance is in discussion to acquire Ele.me, which is the second largest food delivery platform in China, for Alibaba.
We’re seeing huge changes happening in the tech ecosystem in China, right, all these, would you call them second generation, third generation tech company? I mean, definitely see the newer tech companies like Dotto and byte dance coming up and really giving like Alibaba and Tenzin very strong competition.
Yes. And these companies are relatively young. So they’re strong. They still remember agile and, and also operationally they adopt a very different methodology. So for example, Pinto has like 13,000 employees, Alibaba has close to a quarter million, even after layoffs. quarter million. Yeah. And this morning, I just learned jd.com You know, JD right. So so the the retailer has 600,000 employees,
I mean, it’s like more than 10% of the population of Singapore. So the thing is that you look at a competitor, which is growing and which is still growing. And I think Alibaba is still in good shape in terms of, I mean, there still has the strong money making machine Papa and Timo they have, I think, annual free cash flow of $27 billion. So they can still, I think, invest to respond. But with such a large organisation, they need to be very careful about where to invest. And how, how do they sort of make sure that that the moves, they take, the strategies they execute on are future proof? Not easy?
I think you mentioned organisational, or operational efficiency as well, right. So like with Pinduoduo having only 13k employees and Alibaba with almost a quarter million.
So in the recent financial statements, there are a lot of mentions about AI. AI was mentioned 53 times in their earnings call, and GMV, only 8. So it seems that AI is a pretty big focus for Alibaba right now. Maybe this has something to do with them trying to improve their efficiency to compete with these newer companies.
I do think that, I mean, every company, when it becomes a leader in a particular segment, you do certain things very well, on Alibaba, this ecommerce marketplace model very, very well. But when somebody can come in with a completely different model, like Pinduoduo. Pinduoduo doesn’t even have a shopping cart. So you just check out I mean, just click Buy and, and initially people were saying that why would you do that, but they don’t realise that. I mean, the whole company of Pinduoduo is all geared towards extreme efficiency, that allowed low price.
I think for taobao and JD you have to calculate, you have to stack the vouchers to get discounts and stuff and PDD just made it very, very simple. And even organisation reporting lines, everything streamlined.
So when Alibaba as an organisation which would like almost in tech you build it will build on a previous tech stack and as a new tech stack comes in threatening you what we respond with? Will you try to catch up with it, I think it will be a tough game because they have already been geared towards such efficiency.
That said, since such chatgpt was announced a year ago, there is a new opportunity there. Because think about all the E commerce operations or marketing or Uploading of like images, promotion campaigns, distribution of traffic, you know, designing vouchers, etc. Many of these things, you can envision that these things can be done with AI.
And right now with so many merchants that they have, it’s done by a very large team of people, right?
Yeah. So I told you about JD having like 600,000 employees, right. I was asking the person who worked there for many years. I said, like, you understand that, because JD runs his own logistics. And he said, what you mean, if you remove logistics, which is 400,000 people, you still have 200,000. So that we are doing a lot of things procurement, like finance and the loss of money processes, which I think AI and which he thinks that AI could, could replace. And the question is that how exactly will this takes place. And maybe eventually, eventually, everybody will be at the same line, right? Everybody has the same tool at their disposal. But in the meantime, whoever who moves faster, in the right direction will be more efficient. So I do think that’s why Alibaba sees this as an opportunity. But to defend and maybe even overtake, overtake PDD. Again, reverse the momentum. But that will require the organisation to move in sync, that will require, I think, strong control
If you guys want to find out a little bit more about Temus culture as well, because we’re talking a lot about Pinduoduo and how they’re operating in such an efficient way. So we have a few articles that I’ll link in the show notes below on our blog. So why is Pinduoduos execution so strong, and Inside Temu the fiery culture and perpetual efficiency machine?
You should definitely read the article, if you haven’t. So it is written by a friend, and contributed by a few other friends who know Pinduoduo the inside out, and we got permission to trust that article into English. The article is raw and it showcases lots of things that you can notice like when they hire people, we don’t hire people from first tier cities, because you’ll be distracted. Because of too many choices. We want people who actually are committed and who can execute. So a lot of the things added together might be very, very, very efficient.
Actually, this year, you guys recently visited Temus operating headquarters, right? When you guys were in Shenzhen. So maybe you can share a little bit more of your impressions.
So we I think, I think our impression would be superficial, because we went from meeting with some senior people there. But just this superficial sort of impression alone, so give a glimpse of how the company’s like so we visited their operating HQ in Panyu, which is a suburb of Guangzhou and we met a bunch of people there and they’re fair, very direct, right? I mean, no company introduction, because hey, you know what we do? Why do I waste time making a fancy PowerPoint, which many other companies do, Let’s get to business. Let’s talk about business
so you can see that? Are these people more brilliant than others? No, I think some people we met at other companies are us better qualified, smarter, and and basically can be sharper about I mean, perspectives and how is it in this world, but this group of people that we met at a Temu or Pinduoduo, they are very focused on what they do, and they know their business inside out, and they don’t waste time on things which are not related on that. And we put a lot of these people together with the command and control structure, its scary.
Coming back to Alibaba, since you’re talking about like organisations right? Obviously, Alibaba organisation has been through a pretty big transformation this year.
In March, Alibaba announced that it will be splitting its business into six main subsidiaries. And in June, Joe Tsai and Eddie Wu were announced to take over as the group chair and CEO of the Alibaba Group, respectively. And in September, they took over and in November, so just last month, they announced that they will no longer be splitting cloud into a separate business.
And of course, in December, they announced that Eddie will be taking over as CEO of Taobao. When they announced the restructuring, like you mentioned, people said that was a good thing and they were pretty As in executing it. But now we see that they are kind of backtracking on some of the organisation restructuring, right. So what do you think could be a reason for this?
The first I would strongly recommend anyone who follows this company, and also who wants to learn how this company is going through such a dramatic and untraditional, quite risky transformation, to read the earnings call transcript of q3 this year, and the revealed lots of details about the strategy, the thinking and also the progress.
But I think some of the noises in the market are just interesting, right? So it’s kind of funny when people say that companies Big or small, should be agile. But when big companies are making adjustments based on response responses from the market, and also internally, like what Alibaba is doing, I mean, some of the decisions, you try it out, you realise that, okay, there’s a better decision elsewhere. And they make changes. And now people are saying that, Oh, your previous thing has not been well thought or thought through. So I take that as noise.
But the reality is that transforming such a large group with diverse businesses. It’s very difficult. So for instance, I mean, cloud, cai niao they’re deeply integrated into Alibaba ecosystem, right, but the whole Taobao team are hosted on the cloud. And they depend on their shipping and shipping and fulfilment of parcels on Cainiao. So how can you have a clean sort of split and make each of them accountable? So there are lots of things which which you need to navigate through and the lots of, lots of parts where you try to split, they realise that okay, there’s, there’s another way, which is, I mean, not ideal, but better than what you actually do so. So it’s a hugely complex process.
And, of course, we should not forget the people element in that, right. So when the group is going through such a big change, initially, people get excited, especially want to do things. They said, Okay, so I’ve been stagnant and now we can grow again. Now, atleast its shaking up. But as the shifting is taking place, people realise it’s painful, because it’s uncertain, right?
You don’t know what work you don’t know what wouldn’t work. But I think the good thing is that we see Alibaba is really trying to change its organisation. And I do think they’re pretty agile, they’re quick to assess what’s working for them and what’s not. And I think that’s important.
And I mean, similarly for JD, I think they’re also trying to change now that they see these newer tech companies coming up and eroding a little bit of their market share.
I think JD is also having, I think Tencent is having that problem as well, right? You have built a large organisation based on what has worked for you. And to a certain extent, when somebody else comes in with a different paradigm, you find it very hard to adjust, you find it very hard to respond.
So JD, I mean, what was JD famous for – reliable, good quality goods, and delivered consistently. And price was never their advantage. So that’s why you see, brands only work with Alibaba and JD almost never with Pinduoduo. Yeah, but but the problem is that when when consumers are uncertain about the economy, when they try to shift towards value for money, one sort of premium service, or at least the majority of consumers as a switch switching that way, then whatever that has worked for JD, or for Alibaba, or for Tencent, of whatever, has become a drag for them. So they need to adjust.
So I think, I think JD, this year’s 618 and double 11. That pushes, they want to be the lowest price. But how do they ensure that the organisational structure supports that? And how do they make sure that the people, many of them have been within the group for a long time, are wholehearted about this transformation and are willing to put in hard work is not that straightforward?
Especially for this big these companies where you’re managing so many different parts to make sure that everyone is on the same page? I think that’s very tough.
And one thing I think this is when you talk about legacies, I mean, we will talk about the transformation of traditional companies Utapau legacy, and as these tech companies have no legacy. But the truth is that because they have been forced to like update, be agile, whatever, whatever. So legacies tend to get built, actually more quickly.
Because I mean, I don’t know traditional companies, like no, maybe they do one big transformation every 10 years. So after like ninety years, they have like nine iterations legacy built into it. But some tech companies do that like once every, I don’t know six months. Have something that they very quickly build a lot of lot of legacy in their system in their organisation. And that could prevent them from reacting fast. So that’s why I think that I think there’s this one quote from the earnings call, which I think is quite interesting. It was from Eddie. So he said, no matter how successful our business models have been in the past, we need to turn over a new page and start afresh. And it seems that they are firmly committed that AI is the way to take things forward
It’s the new page for them is AI right?
Yeah, it’s probably the enabler of the new page. And also from just the operations from E commerce. Now, you’ll see that there’s much less focus on GMV. But there’s a lot of more focus on active usage, daily active users and stuff. And if people remember, that was the focus of Pinduoduo a few years ago, it just said, Okay, we don’t care about how low the the value is, we don’t care about like, we don’t care about anything else, like just the number of times that people actually interact with us, each time is the vote of confidence that okay, there wouldn’t be a wallet with this platform.
So it has worked for them. And I think it was what worked for Alibaba in the beginning as well. But somehow over the course of evolution, they became more pro brands, pro premium. But now, if you if you look at what Jack Ma said, earlier this year, they need to go back to Taobao, go back to users
Which is a very crucial part of their business, right. So they’re going back.
And we see that now, obviously, that company is at a crossroads, they’re facing numerous challenges, and the tech ecosystem in China is definitely very, very competitive. So we also see the co-founders coming up. So like Joe Tsia, Eddie Wu, Lucy Peng, they’re coming up to lead the organisation and sort of defend its position in the industry. So it’s interesting to see how they do this. And at the same time, of course, you can expect them to be at the forefront of the company forever. Eventually, they wouldn’t want to retire. So I think at the same time, while they’re leading the company, they’re also probably trying to train and select a group of future leaders.
Yeah, so So I do think that they recognise the problem with lots of the people at the meet and the mid to senior levels, they’ve been with a good for a long time. And many of them might not be motivated enough to do drastic change. So and, and also, and also, the other organisations are much younger compared to them. So they need to do this generational overhaul. But how to do that.
I think only the co-founders would have the ability to stand up an organisation, the ability to rally the people who are still motivated and committed, and the ability to, to make sure that many extremely painful adjustments happen. And the organisation still remains coherent and moving forward. So I do think that they’re there. They’re also spending time looking at I mean, who will be the young leaders, maybe Jian Ping will be one of them, who’s now managing Lazada. And I’ll express. So but overall, I think, I think I think this is a very, very interesting case study and a very, very brave undertaking in front of co founders. I mean, this guy’s Yeah, they don’t need money worthy enough, and that there’s no sort of, I don’t know, personal political agenda. I think they genuinely want their collective legacy to work.
So I think with that, that’s all for today’s episode of the Impulso podcast, and we’ll be back tomorrow with another episode. So thank you for listening, and we’ll see you tomorrow. Bye. Bye.