E71 – The Impulso Podcast – Joe Tsai interview redefines who Alibaba’s customers really are

In a recent interview, Joe Tsai, Chairman of Alibaba, redefined Alibaba’s customers as users shopping on their apps, a shift from their previous focus on merchants. This marks a shift from their previous emphasis on merchants, and with Alibaba’s revenue historically heavily reliant on merchant advertising, Alibaba’s shift towards user-centricity challenges this model.

So, what does this mean for Alibaba’s strategy moving forward? How will Alibaba balance between user and merchant satisfaction? 

As Alibaba undergoes its biggest transformation yet, its leaders will have to make crucial decisions. Joe Tsai stresses the importance of humility and leaders being willing to acknowledge mistakes and pivot or backtrack on decisions when necessary.

Check out the full episode here:

Featured materials:
Joe Tsai Co-founder & Chair of Alibaba | In Good Company | Norges Bank Investment Management, Norges bank Investment Management
Transforming Alibaba, Momentum Works
E70: Succession – successful tech founders’ dilemma, The Impulso Podcast
E68: Alibaba is giving up on new retail, The Impulso Podcast
E47: Why does Alibaba replace taobao CEO?, The Impulso Podcast

[AI-generated transcript] 

[00:00:00] Sabrina

Hello everyone, and welcome to episode 71 of the Impulso podcast by Momentum Works. So on today’s episode, we’re going to be talking about Joe Tsai, the chairman of Alibaba, who recently gave an interview to Nikolai Tangen, the CEO of Noregs bank Investment Management. 

 

[00:00:17] Jianggan

That’s the Sovereign Wealth Fund of Norway, right?

 

[00:00:20] Sabrina

Yes. So I’ll link the full podcast in the show notes below. Do listen to it if you have the time. I think it’s quite interesting. It gives an honest assessment of Alibaba and their direction moving forward as well as the China economy. And I think he talks a little bit about AI as well. 

 

[00:00:36] Jianggan

And of course most media captured different parts of this interview, right?

And he said China is two years behind the U. S. in terms of AI, that many media outlets captured this as his key point, but I think most media caught this point he mentioned aside saying that Alibaba stepped on their own foot. By overlooking. 

 

[00:00:55] Sabrina

By overlooking their real customers, forgot who our real customers are.

So he has a quote, a long quote. I will add the clip here instead. 

And I think when we look internally and kind of self reflect over the last several years, we have fallen behind because we forgot about who our real customers are. Our customers are the users that use our apps that are shopping. And we did not give them the best experience. So in a way we kind of. You know, stepped on our own foot and didn’t really focus on where the value is, where, where we could provide value. And so as part of the reorganization, our new CEO comes in, I’m the chairman, but I work with a CEO who’s 12 years younger than I am. And he’s very, very user focused, focus on the product and the interface and the user experience.

And that’s the most important thing for us.

 So that’s what Joe Chai said on the podcast. Basically he acknowledged that Alibaba forgot about their real customers. And that’s one of the reasons why they have Fallen behind. And in this case, I’m assuming they mean fallen behind Pinduoduo. Specifically.

 

[00:02:08] Jianggan

So obviously, you know, Alibaba is going through a very large transformation and it has not been an easy transformation. So last year, Jack Ma said that Alibaba needs to go back to Taobao needs to go back to users. And here I find this part very interesting that Joe Tsai mentioned, right?

Because most people say, oh, okay, the customers are users, obviously, right? But if you look at the structure of Alibaba and how they generate their revenue, you’ll notice that it’s essentially a merchant advertising platform. Like the majority or the largest portion of its revenue comes from different kinds of advertising That merchants have paid for, and I think Jules had mentioned about this as well.

I mean, how e commerce in China evolved differently. They become an advertising platform. So essentially the merchants are the paying customers. The merchants, the sellers, the manufacturers, et cetera. So for a long time if you look at how Alibaba is structuring their organization, I mean, they have lots of merchant tools being created.

They have a lot of customer service who are actually focused on merchants because the merchants would actually use the platform. And to sell their ware, and also the merchants will provide their own customer service to consumers. So from what Joss has said this time around, it seems that, that they are redefining that.

 

[00:03:23] Sabrina

And focusing more on their users.

 

[00:03:25] Jianggan

On the users. 

 

[00:03:26] Sabrina

Rather than the merchants.

 

[00:03:27] Jianggan

I think Sabrina, you have a question about that, right? 

 

[00:03:30] Sabrina

Yes. So my question was essentially Alibaba as a platform and technically as a platform, your users are both your customers as well as your merchants. Right. And I don’t think a platform can truly just focus on one because you have to balance both because if you only take care of your customers, merchants can just leave your platform and then you would have nothing to give your customers because you don’t sell your own goods or anything, right?

 

[00:03:55] Jianggan

If you just take care of customers, why would merchants leave your platform? If this is truly where the customers are. 

 

[00:04:03] Sabrina

But, okay, so one thing that a lot of, like you mentioned, a lot of the merchants complain about working on other apps, right? It’s not as easy to use as Alibaba. Like, for example 

 

[00:04:13] Jianggan

I think merchants have complained a lot about Pinduoduo being very unfriendly towards merchants.

So a lot of detailed policies such as for instance, Pinduoduo has this longstanding policy that, okay, the customers can ask for a refund. No questions asked. And without returning the goods. So basically merchants will say that, okay, that opens up to a lot of abuse, right? I mean, customers can simply like buy the goods, claim a refund and keep the goods.

And I think customers like that. 

 

[00:04:45] Sabrina

I would like it too, if I could buy things without having to pay. 

 

[00:04:51] Jianggan

And I think they generally assume that. I think, Pinduoduo, assume that most customers are good customers and for a few bad customers they have ways to deal with it, but that whole act, I mean, sort of improved the customer experience a lot because it gives the customer trust that, okay, there might be fake people saying that, and there might be poor quality stuff, but I’m not worried because I can always ask for a refund and without having all the hassle of arranging for the goods to be returned.

 

[00:05:16] Sabrina

So you reduce the sort of Decision making that the customer has to make because it’s so easy for them to just get a refund and I think because of this Consumers are a lot more loyal to Pinduoduo. It’s easy to use. It doesn’t matter if The product is not good. I’ll just get a refund and that forces merchants to use the platform as well 

 

[00:05:34] Jianggan

If the customers are there and the merchants have to be there, they might have brushed about it but of course you also can’t I wouldn’t say abuse but you can’t like pressurize them too much because I think any government would have incentive to support small and medium businesses because in most countries they employ the most amount of people.

 So at the end of the day so I think from Alibaba point of view. They felt that over the years, at least the current leadership felt over the years, they focus way too much on making it easy for the merchants and overlooked the users. And whereas you have Pinduoduo who focus almost exclusively on user experience and Alibaba feels that they’re being left behind and they need to catch up.

 

[00:06:18] Sabrina

And I think, especially because Alibaba sees Pinduoduo as their main competitor in China right now. But I mean, this doesn’t mean that Alibaba can just. will stop caring about their merchants, right? 

 

[00:06:30] Jianggan

They can’t stop caring about the merchants because at the end of the day, the merchants are still paying them the bulk.

 And you also don’t want merchants to feel that, okay, you know, being pressurized by Pinduoduo is the same as Alibaba. So I might as well sell on Pinduoduo 

because the users are there. So it’s a balancing act. And sometimes you think about that. I mean, from the top level, I mean the high level strategy.

Okay, we need to take care of the users. That sounds easy, right? But when it goes down to organization of almost a quarter million people, you need to think about what exactly do I do? What kind of incentives, what kind of. I mean, down to the minute, like policy level, right? I mean, so refund management or return management. So Taobao actually followed suit of Pinduoduo in offering that refund without return a couple of months ago. At the same time, you will have a lot of noises, right? You have lots of different voices. You have merchants complaining, saying that hole you’re infringing my interest.

I’m paying you. You have internal people saying that, Hey, you are hurting my KPI. So the whole adjustment is actually quite, quite complex. 

 

[00:07:36] Sabrina

I think Joe Tsai acknowledges this as well in the podcast. So he says that they acknowledge what they’ve done wrong. And of course he said now they’re going through it’s transformation and they’re reorganizing their personnel based on the strategy that they’ve chosen.

 

[00:07:52] Jianggan

So we do know that this path is difficult. And there’s lots of uncertainties. There’s also lots of internal adjustment you need to make, right? So, I mean, if a key department leader doesn’t support your new vision, what do you do? You fire the person, you try to re educate the person, you try to work on compromise.

 And lots of different sort of relationships and organizational intricacies inside you to make all these adjustments. And that is what makes the transformation of Alibaba truly difficult. I mean, transformation of every company, right? 

 

[00:08:20] Sabrina

I think we’ve done a couple of podcast episodes on Alibaba’s transformation.

We also have a report called transforming Alibaba, right? So I’ll link that in the show notes. 

 

[00:08:29] Jianggan

There are lots of lessons that other organizations can learn. And actually, reflecting who your real customers are, I mean, is something that I think many organizations can do as well. 

 

[00:08:40] Sabrina

Because it’s important, right?

Your customers are the ones who drive your strategy. What you want to do, the kind of products you want to develop, etc. So it’s important to re look at your customers once in a while. 

 

[00:08:51] Jianggan

And the customers are not always the people who are paying you. So, and I know there’s always the accounting treatment of figuring out who your customers are, but strategically, I think this is worth think for all the leaders.

I mean, who are your real customers? Who are the ones which if they stick with you, it makes you great versus your competitors. And how do you serve these customers better? This is a worthy reflection. 

 

[00:09:16] Sabrina

And I think , we’ve spoken a lot about Alibaba’s transformation because I think Their transformation is quite interesting to observe, right?

It started early last year. And throughout the whole transformation, they’ve made a lot of changes. They went back on some stuff and something he mentioned in his speech as well was that part of leadership is humility and leaders have to acknowledge when they make a mistake, which is something that we mentioned in our previous podcast as well, in terms of One of Meituan’s co founders coming back.

So, this is interesting because you actually see this a lot in Alibaba’s transformation, right? They say that they’ll do something and then they go back on it, but they don’t hesitate to stop doing something just because it’s not working. They don’t hesitate to redefine who their customers are, even if it might upset the people who are paying them.

 

[00:10:02] Jianggan

I know some of these leaders personally, and I do think that humility is something they genuinely have, right? They genuinely are curious about what’s going on in their journey, are curious about what they did wrong and what opinions they have about them. What quite often happens is that at these companies, it’s the mid levels.

Some people have become cocky, you know, I work for a great company. I have this great position, I have this great power. But when we look at the leaders, they’re all. Almost all humble. This is actually something interesting. So, because, you know, I worked for rocket internet for a couple of years and and back then that the culture I was told is that, okay, being a leader, you need to not be humble.

You need to move fast. You need to be extremely aggressive, et cetera. I think that worked for a certain period of time where a company needs to grow from a certain stage to a certain stage, because you need that kind of drive to push things forward. But. In a long run, when you try to compete in a world of attrition, when you are dealing with constantly changing external landscapes, when you try to bring thousands of people through a lot of difficult times and choppy waters, 

being humble is probably the right way to do it.

 

[00:11:13] Sabrina

And I think, of course like we mentioned in our previous podcast, these leaders, they’ve been there since the beginning of Alibaba, right? So it’s probably easier for them to get the trust of the organization. And it makes it easier for them when they have to backtrack on a mistake as well. So yeah, I think that’s what makes the whole Alibaba transformation so interesting to watch, in that they didn’t just set a direction and go straight towards it.

 

[00:11:36] Jianggan

They didn’t hire the consultants to make a direction and they forced everyone to adopt and if things go wrong they will blame the consultants and they didn’t do that. 

 

[00:11:46] Sabrina

Yes, they made the decisions themselves and of course if something goes wrong they They can quickly make the decision to pull back or to go for something else.

 

[00:11:54] Jianggan

It’s still an ongoing process, so they might still make mistakes, they might still pull back from decisions. But I do think that over the years, you will see some of the shifts, which signifies, I think, more and more clarity in terms of Not really a strategy, but how this strategy is carried out, how this strategy is communicated.

 

[00:12:16] Sabrina

Have you seen any other companies in China doing a similar sort of reorganization or transformation? 

 

[00:12:24] Jianggan

Large companies? Tencent did a number of restructurings. I think Meituan did some leadership reshuffle but nowhere near the level of Alibaba in terms of the depth and severity and also complexity in terms of restructuring.

I do think that another company which you should really look at is Huawei. Huawei over the years, they went through a lot of challenging times, they did lots of restructuring, they changed the priorities, and they had to constantly, I mean, look at the challenges they face, right? I mean, ban of chips, and also constantly, I mean, CFO was jailed in Canada for a while, but the company still managed to bounce back, and I think there are some great learnings that we can all learn from, and especially in this region where lots of companies are looking at transformation.

 

[00:13:06] Sabrina

So thank you guys for tuning in to another episode of the Impulso podcast. We hope that you guys enjoyed today’s episode. And if you did do like our podcast and follow us on Spotify, Apple podcast, or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail, and the broader digital economy.

Thank you. 

 

[00:13:23] Jianggan

Bye bye.